HARBOR FLORIDA BANCSHARES, INC. AND SUBSIDIARIES
                             Index to Annual Report





                                                                            Page

Selected Consolidated Financial Data                                         2

Management's Discussion and Analysis of Financial
   Condition and Results of Operations                                       3

Independent Auditors' Report                                                17

Consolidated Statements of Financial Condition -
   September 30, 1999 and 1998                                              18

Consolidated Statements of Earnings -  Years ended
   September 30, 1999, 1998, and 1997                                       19

Consolidated Statements of Stockholders' Equity
   and Comprehensive Income - Years ended
   September 30, 1999, 1998, and 1997                                       20

Consolidated Statements of Cash Flows -Years
   ended September 30, 1999, 1998, and 1997                                 22

Notes to the Consolidated Financial Statements                              24




All schedules are omitted as they are not required or are not  applicable or the
required  information  is  shown  in  the  applicable   consolidated   financial
statements or notes thereto.







                                       1
<PAGE>




Selected Consolidated Financial Data

Selected Consolidated Financial Condition Data
<TABLE>
<CAPTION>
                                                                     September 30,
                                     1999              1998              1997              1996              1995
                                     ----              ----              ----              ----              ---->
                                   (Dollars in thousands)

<S>                              <C>               <C>               <C>               <C>                 <C>
Total assets                     $1,462,550        $1,350,583        $1,131,024        $1,057,443          $886,570
Loans (net) (1)                   1,070,335           944,700           834,270           765,019           631,307
Federal funds sold                      ---            20,000               250            16,075            12,825
Investment securities (2)            87,076           101,505            52,553            53,493            25,186
Mortgage-backed securities          196,971           201,049           176,854           153,293           164,759
Real estate owned                       911             2,534             2,314             3,118             2,786
Deposits                            977,595           918,126           911,576           851,853           720,981
FHLB advances                       225,000           145,000           100,000            95,000            65,000
Other borrowings                        ---               ---               475               674               974
Stockholders' equity                235,922           263,719            96,802            84,832            77,500
</TABLE>

(1)  Excludes  loans  held  for sale of  $1,747,000,  $714,000,  $141,000,  $4.9
     million,  and $1 million,  as of September 30, 1999,  1998,  1997, 1996 and
     1995,  respectively.
(2)  Includes  investments  available for sale of $76.1 million,  $71.5 million,
     $47.6 million,  $33.5 million and -0-in 1999,  1998,  1997,  1996 and 1995,
     respectively.



Selected Consolidated Operating Data
<TABLE>
<CAPTION>
                                                                Years Ended September 30,
                                                                -------------------------
                                                  1999       1998        1997        1996       1995
                                                  ----       ----        ----        ----       ----
                                                             (Dollars in thousands)
<S>                                             <C>        <C>         <C>        <C>         <C>
Interest income                                 $103,884   $ 95,158    $ 84,814   $ 74,357    $ 64,884
Interest expense                                  48,840     46,658      45,159     39,114      33,280
                                                --------   --------    --------   --------    --------
Net interest income                               55,044     48,500      39,655     35,243      31,604
Provision for (recovery of) loan losses              816        297         782        (76)        460
---------------------------------------------   --------   --------    --------   --------    --------

Net interest income after provision for
    loan losses                                   54,228     48,203      38,873     35,319      31,144
                                                --------   --------    --------   --------    --------
Other income:
    Income (loss) from real estate operations        405        (41)        145       (301)        (40)
    Gain (loss) on sale of mortgage loans             57        142         188        (40)         91
    Other                                          5,532      5,749       3,880      3,226       2,856
                                                --------   --------    --------   --------    --------
Total other income                                 5,994      5,850       4,213      2,885       2,907
                                                --------   --------    --------   --------    --------
Other expenses:
    Compensation and benefits                     15,413     14,282      11,931     10,690      10,048
    Professional fees                                558        589         599        527         699
    SAIF deposit insurance premium                   552        572         785      6,300       1,556
    Other                                          9,326      9,001       7,833      6,615       5,895
                                                --------   --------    --------   --------    --------
Total other expenses                              25,849     24,444      21,148     24,132      18,198
                                                --------   --------    --------   --------    --------
Income before income taxes                        34,373     29,609      21,938     14,072      15,853
Income tax expense                                13,154     12,243       8,611      5,432       5,958
                                                --------   --------    --------   --------    --------
Net income                                      $ 21,219   $ 17,366    $ 13,327   $  8,640    $  9,895
                                                ========   ========    ========   ========    ========
</TABLE>



                                       2
<PAGE>





Selected Financial Ratios
<TABLE>
<CAPTION>
                                                             At or for the years ended September 30,
                                                             ---------------------------------------
                                                          1999     1998      1997      1996      1995
                                                          ----     ----      ----      ----      ----

Performance Ratios:
<S>                                                    <C>       <C>       <C>        <C>      <C>
    Return on average assets (1)                          1.49%     1.40%     1.22%      .91%     1.16%
    Return on average stockholders' equity (1)            8.54      9.34     14.72     10.51     13.61
    Net interest rate spread                              3.30      3.40      3.36      3.40      3.42
    Net yield on average interest-earning assets          3.99      4.04      3.72      3.79      3.80
    Noninterest expense to average assets (1)             1.82      1.97      1.93      2.53      2.14
    Average interest-earnings assets to average
        interest-bearing liabilities                    119.76    116.54    108.33    109.24    109.58
    Efficiency Ratio (1)                                 42.67     46.87     48.83     62.83     52.76

Asset Quality Ratios:
    Nonperforming assets to total assets                   .24       .37       .43       .50       .71
    Allowance for loan losses to total loans              1.12      1.25      1.40      1.44      1.60
    Allowance for loan losses to nonperforming
        loans                                           470.31    483.13    453.11    507.25    286.70
    Allowance for losses on real estate owned  to
        total real estate owned                             --     20.01     19.99     35.45     40.00

Capital Ratios:
    Average stockholders' equity to average assets       17.45     15.01      8.26      8.62      8.54
    Stockholders' equity to assets at period end         16.13     19.53      8.56      8.02      8.74
</TABLE>


(1) Year ended  September  30, 1996 includes  one-time  SAIF special  assessment
    expense of $4.6 million, $2.8 million, net of tax. Without the one-time SAIF
    special  assessment,  return on average assets would have been 1.20%, return
    on average  equity  would have been 13.92%,  noninterest  expense to average
    assets  would  have been  2.05% and the  efficiency  ratio  would  have been
    50.97%.




Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations

Special Note Regarding Forward-Looking Statements

This  report  contains  certain  "forward-looking  statements."  Harbor  Florida
Bancshares,  Inc (the "Company")  desires to take advantage of the "safe harbor"
provisions  of the  Private  Securities  Litigation  Reform  Act of 1995  and is
including  this  statement  for the express  purpose of  availing  itself of the
protections  of  the  safe  harbor  with  respect  to all  such  forward-looking
statements. These forward-looking statements, which are included in Management's
Discussion and Analysis and elsewhere,  describe  future plans or strategies and
include  the  Company's  expectations  of future  financial  results.  The words
"believe,"   "expect,"   "anticipate,"   "estimate,"   "project,"   and  similar
expressions  identify  forward-looking  statements.  The  Company's  ability  to
predict  results or the effect of future plans or strategies or  qualitative  or
quantitative  changes  based on market risk  exposure is  inherently  uncertain.
Factors  which could  affect  actual  results  include but are not limited to i)
change in general market interest rates, ii) general economic  conditions,  iii)
legislative/regulatory  changes,  iv) monetary  and fiscal  policies of the U.S.
Treasury and the Federal  Reserve,  v) changes in the quality or  composition of
the Company's loan and investment portfolios, vi) demand for loan products, vii)
deposit flows, viii)  competition,  and ix) demand for financial services in the
Company's  markets.  These  factors  should  be  considered  in  evaluating  the
forward-looking  statements,  and undue  reliance  should  not be placed on such
statements.



                                       3
<PAGE>

General

The Company's results of operations are primarily  dependent on its net interest
income.  Net  interest  income  is a  function  of the  balances  of  loans  and
investments  outstanding in any one period,  the yields earned on such loans and
investments,  and the interest  paid on deposits  and  borrowed  funds that were
outstanding  in that same period.  The  Company's  noninterest  income  consists
primarily  of fees and service  charges,  gains on sale of  mortgage  loans and,
depending  on the period,  real  estate  operations  which have either  provided
income or loss. The results of operations are also significantly impacted by the
amount of provisions for loan losses which,  in turn, is dependent  upon,  among
other  things,  the size and makeup of the loan  portfolio,  loan  quality,  and
trends. The noninterest expenses consist primarily of employee  compensation and
benefits,  occupancy expense and federal deposit insurance premiums. Its results
of  operations  are  affected by general  economic and  competitive  conditions,
including  changes in prevailing  interest  rates and the policies of regulatory
agencies.

Market Risk and Asset and Liability Management

The  Company  attempts  to manage its assets and  liabilities  in a manner  that
stabilizes  net interest  income and net  economic  value under a broad range of
interest  rate  environments.  This is  accomplished  by matching  maturity  and
repricing  periods on loans and investments to maturity and repricing periods on
deposits and borrowings.

The matching of assets and liabilities may be analyzed by determining the extent
to which such assets and liabilities  are interest rate  sensitive.  An asset or
liability is  considered to be interest  rate  sensitive  within a specific time
period if it  matures  or  reprices  within  that  time  period.  Interest  rate
sensitivity  analysis,  also known as "gap"  analysis,  attempts  to measure the
difference between the amount of  interest-earning  assets expected to mature or
reprice within a specific time period compared to the amount of interest-bearing
liabilities  expected to mature or reprice within that time period.  An interest
rate  sensitive  "gap" is  considered  positive when the amount of interest rate
sensitive  assets  exceeds the amount of  interest  rate  sensitive  liabilities
maturing or  repricing  within a specified  time period.  A "gap" is  considered
negative  when the amount of  interest  rate  sensitive  liabilities  exceed the
amount of  interest  rate  sensitive  assets  that  mature or  reprice  within a
specified time period.  Interest rate sensitivity  analysis is based on numerous
assumptions, such as estimates for paying loans off prior to maturity. Estimates
are revised annually to reflect the anticipated interest rate environment.

Generally,  an institution with a positive  interest rate sensitivity  "gap" can
expect net interest  income to increase  during periods of rising interest rates
and decline during periods of falling interest rates.  Likewise,  an institution
with a negative  "gap" can expect an  increase  in net  interest  income  during
periods of falling  interest rates and a decrease in net interest  income during
periods  of  rising  interest  rates.  At  September  30,  1999,  the  Company's
cumulative one-year interest rate sensitivity "gap" was negative 9.46%.

The Board of Directors  has  established  an  asset/liability  committee,  which
consists of the  Company's  president and other senior  officers.  The committee
meets on a monthly  basis to review  loan and  deposit  pricing  and  production
volumes,  interest rate risk  analysis,  liquidity and  borrowing  needs,  and a
variety of other asset and liability management topics.

The Company currently utilizes the following  strategies to reduce interest rate
risk: (a) the Company seeks to originate and hold in portfolio  adjustable  rate
loans which have annual  interest  rate  adjustments;  (b) the Company  seeks to
lengthen  the  maturities  of deposits  when deemed cost  effective  through the
pricing and  promotion of  certificates  of deposits;  (c) the Company  seeks to
attract  low  cost  checking  and  transaction  accounts  which  tend to be less
interest  rate  sensitive  when  interest  rates  rise;  and (d) the Company has
utilized  long  term  Federal  Home  Loan  Bank  ("FHLB")  advances  to fund the
origination  of fixed rate  loans.  The Company  also  maintains a high level of
liquid assets  consisting  of  shorter-term  investments,  which are expected to
increase in yield as interest rates rise.



                                       4
<PAGE>

Interest Rate Sensitivity

The table below provides  information about the Company's financial  instruments
that are sensitive to changes in interest  rates as of September  30, 1999.  For
borrowings, the table presents principal cash flows by expected maturity dates.


<TABLE>
<CAPTION>
                                                                More than one    More than
                                      Within        Four to     year to three   three years to   Over five
                                   three months   twelve months    years         five years         years        Total
                                                             (Dollars in thousands)
<S>                                <C>            <C>            <C>            <C>            <C>           <C>
Interest-earning assets (1):
  Mortgage loans (2)
    Fixed rate                     $   22,536     $   67,614     $  150,163     $  116,220     $  312,314    $  668,847
    Adjustable rate                    38,290        120,688         58,320         72,117          5,671       295,086
  Other loans (2):
    Fixed rate                         13,247         39,741         25,209          3,088            420        81,705
    Adjustable rate                    24,886         12,945           --             --              586        38,417
  Mortgage-backed securities:
    Fixed rate (3)                      8,195         23,961         50,878         37,568         64,189       184,791
    Adjustable rate                     1,282         10,898           --             --             --          12,180
  Investment securities and
    other assets                       44,209          9,995         49,570         19,807            915       124,496
                                   ----------     ----------     ----------     ----------     ----------    ----------
       Total                       $  152,645     $  285,842     $  334,140     $  248,800     $  384,095    $1,405,522
                                   ----------     ----------     ----------     ----------     ----------    ----------
Interest-bearing liabilities:
  Deposits (4):
    NOW accounts                   $    6,618     $   19,855     $   25,415     $    9,149     $    5,147    $   66,184
    Passbook accounts                  16,276         48,829         36,459          5,833          1,111       108,508
    Money market accounts               8,603         25,809          8,259            330             14        43,015
    Certificates of deposits          156,756        294,096        203,098         16,445            886       671,281
  Borrowings                             --             --           35,000        125,000         65,000       225,000
                                   ----------     ----------     ----------     ----------     ----------    ----------
       Total                       $  188,253     $  388,589     $  308,231     $  156,757     $   72,158    $1,113,988
                                   ----------     ----------     ----------     ----------     ----------    ----------
Excess (deficiency) of interest
    earning assets over
    interest-bearing liabilities   $  (35,608)    $ (102,747)    $   25,909     $   92,043     $  311,937    $  291,534
                                   ==========     ==========     ==========     ==========     ==========    ==========
Cumulative excess (deficiency)
    of interest-earning assets
    over interest-bearing
    liabilities                    $  (35,608)    $ (138,355)    $ (112,446)    $  (20,403)    $  291,534
                                   ==========     ==========     ==========     ==========     ==========
Cumulative excess (deficiency)
    of interest-earning assets
    over interest-bearing
    liabilities as a percent of
    total assets                       (2.43)%        (9.46)%        (7.69)%        (1.40)%        19.93%
                                   ==========     ==========     ==========     ==========     ==========
</TABLE>

(1) Adjustable  and  floating  rate  assets are  included in the period in which
    interest  rates are next  scheduled  to adjust  rather than in the period in
    which they are due,  and fixed rate  assets are  included  in the periods in
    which they are  scheduled to be repaid based on scheduled  amortization,  in
    each case  adjusted to take into account  estimated  prepayments.  Estimated
    prepayment  statistics  were  obtained  from the  research  department  of a
    primary  securities  dealer.  For fixed rate  mortgages and  mortgage-backed
    securities,  annual  prepayment  rates from 10% to 26%,  based on the coupon
    rate, were used.
(2) Balances  have been reduced for loans in process and deferred  loan fees and
    discounts   that   aggregated  to  $75.0  million  at  September  30,  1999.
    Nonperforming  loans  aggregating  $2.5 million were  included in the within
    three month repricing period.
(3) Fixed rate  mortgage-backed  securities include  amortizing  securities that
    balloon 5 years and 7 years from  original  issue date.  Balloon  securities
    amounted to $61.4 million at September 30, 1999.
(4) The Company's  negotiable  order of withdrawal  ("NOW")  accounts,  passbook
    savings accounts and money market deposit accounts are generally  subject to
    immediate  withdrawal.  However,  management  considers a certain portion of
    these accounts to be core deposits  having  significantly  longer  effective
    maturities  based on the  Company's  retention of such  deposit  accounts in
    changing interest rate environments. NOW accounts, passbook savings accounts
    and money  market  deposit  accounts  are assumed to be  withdrawn at annual
    rates of 40%, 60% and 80%,  respectively,  of the declining  balance of such
    accounts  during  the  period  shown.  Management  believes  the  rates  are
    indicative  of  expected   withdrawal   rates  in  a  rising  interest  rate
    environment.  If  all  of  the  Company's  NOW  accounts,  passbook  savings
    accounts,  and money market deposit  accounts had been assumed to be subject
    to  repricing  within  one  year,  the  cumulative  one-year  deficiency  of
    interest-earning  assets to  interest-bearing  liabilities  would  have been
    $230.0 million, or negative 15.73% of total assets.

                                       5
<PAGE>


Certain  shortcomings  are  inherent in the method of analysis  presented in the
foregoing table.  For example,  although certain assets and liabilities may have
similar maturities or periods to repricing,  they may react in different degrees
to changes in market interest  rates.  Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates,  while  interest  rates on other  types may lag behind  changes in market
rates.  Additionally,  certain  assets,  such as adjustable rate mortgage loans,
have features that restrict  changes in interest rates on a short-term basis and
over the life of the asset. Further, in the event of a change in interest rates,
prepayment and early withdrawal levels would likely deviate  significantly  from
those assumed in calculating the table.  Finally,  the ability of many borrowers
to service their debt may decrease in the event of an interest rate increase.

The  Company  does  not  purchase,  sell  or  enter  into  derivative  financial
instruments  or  derivative  commodity  instruments  as defined by  Statement of
Financial Accounting Standards No. 119,  "Disclosures about Derivative Financial
Instruments and Fair Value of Financial Instruments."

Interest Rate Risk

The  Company  uses a computer  model to quantify  its  interest  rate risk.  The
computer  model  measures the  sensitivity of asset and liability fair values to
hypothetical changes in interest rates. Interest rate sensitive instruments used
in the computer model include:  loans,  mortgage-backed  securities,  investment
securities,  federal funds sold,  interest-bearing deposits in other banks, FHLB
stock,  deposits,  advances from the FHLB, and off- balance sheet loan servicing
rights and commitments.  The model calculates net portfolio value of fair values
for assets,  liabilities and off-balance sheet contracts using a discounted cash
flow methodology.  Management  estimates  discount rates by using current market
yields on similar financial instruments.  Discount rates are adjusted upward and
downward  by 100 basis  points and 200 basis  points to  reflect a  hypothetical
parallel  shift in  interest  rates.  In  addition,  management  estimates  loan
prepayment  rates,  deposit decay rates, and values of certain assets that could
correspond with such hypothetical parallel shifts in interest rates.  Management
also assumes that loan delinquency  rates will not change as a result of changes
in interest  rates,  although  there can be no  assurance  that this will be the
case.

Presented below is an analysis of the Company's  interest rate risk at September
30,  1999 as  calculated  utilizing  the  Company's  computer  model.  The table
presents net portfolio value, dollar and percent changes in net portfolio value,
for  instantaneous  and  parallel  shifts in the yield  curve in 100 basis point
increments up and down.



            Change in     Net portfolio
              rates       value amount     Dollar change     Percent
              -----       ------------     -------------     -------

                                (Dollars in thousands)

            +200 B.P        $202,725        $(55,778)        (21.6)%

            +100 B.P        $229,098        $(29,405)        (11.4)%

               0 B.P        $258,503        $      0             0 %

            -100 B.P        $284,529        $ 26,026          10.1 %

            -200 B.P        $288,966        $ 30,463          11.8 %



The preceding analysis is based on numerous assumptions that management believes
to be reasonable.  These  assumptions  relate to interest rates, loan prepayment
rates,  deposit decay rates,  and market values of certain  assets under various
interest rate scenarios.  It was also assumed that  delinquency  rates would not
change  as a result  of  changes  in  interest  rates  although  there can be no
assurance  that this  will be the case.  Even if  interest  rates  change in the
designated  increments,  there can be no assurance that the Company's assets and
liabilities  would  perform as indicated  in the table above.  Since there is no
quoted market for most of the Company's financial instruments, management has no
basis to determine  that values  presented  would be  indicative  of the amounts
realized  in  an  actual  negotiated  sale.  Furthermore,   management  has  not
considered  the tax  effect or  transaction  costs that may be  associated  with
disposal of the  Company's  assets and  liabilities.  A change in U.S.  Treasury
rates in the indicated amounts, accompanied by a change in the slope or shape of
the yield curve,  could result in  significantly  different net portfolio values
than shown above.


                                       6
<PAGE>


Equity Price Risk

The Company  maintains a portfolio of available for sale equity securities which
subjects  the  Company to equity  pricing  risks.  The change in fair  values of
equity  securities  represents  instantaneous  changes in all equity  prices for
available  for sale  equity  securities.  Equity  price risk is managed  through
company  diversification  and  individual  position  limits  established  in the
investment  policy. At September 30, 1999 the company did not maintain an equity
trading portfolio.  The following are changes in the fair value of the Company's
available for sale securities at September 30, 1999 based on percentage  changes
in fair value.


               Percent change                   Fair value of available-
               in fair value                       for-sale securities
                             (Dollars in thousands)
                   20 %                                 $8,147
                   10 %                                 $7,468
                    0 %                                 $6,789
                  (10)%                                 $6,110
                  (20)%                                 $5,431


Actual future price appreciation or depreciation may be different.

Analysis of Net Interest Income

The Company's  earnings have historically  depended primarily upon the Company's
net interest income,  which is the difference  between interest income earned on
its loans and investments  ("interest-earning  assets") and interest paid on its
deposits and any borrowed funds ("interest-bearing  liabilities").  Net interest
income is affected by (i) the difference between rates of interest earned on the
Company's  interest-earning  assets  and  rates  paid  on  its  interest-bearing
liabilities  ("interest  rate  spread")  and (ii) the  relative  amounts  of its
interest-earning assets and interest-bearing liabilities.

The  following  tables  present an analysis of certain  aspects of the Company's
operations  during the periods  indicated.  The first table presents the average
balances of, and the interest and dividends  earned or paid on, each major class
of interest-earning assets and interest-bearing  liabilities.  No tax equivalent
adjustments were made.  Average balances  represent daily average balances.  The
yields and costs include fees that are considered adjustments to yields.


                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                       Years Ended September 30,
                                          1999                               1998                               1997
                                          ----                               ----                               ----
                               Average   Interest   Yield/     Average      Interest &  Yield/    Average      Interest &   Yield/
                               Balance  &Dividends   Rate      Balance      Dividends    Rate     Balance      Dividends     Rate
                               -------  ----------   ----      -------      ---------    ----     -------      ---------     ----

                                                          (Dollars in thousands)
Assets:
Interest-earning assets (1):
<S>                          <C>         <C>        <C>       <C>           <C>       <C>        <C>            <C>      <C>
 Federal funds sold            $ 5,699      $ 299      5.25%     $ 7,959       $ 448     5.63%      $ 7,404        $399     5.39%
 Interest-bearing deposits      45,317      2,198      4.85       40,531       2,233     5.51        29,674       1,614     5.44
 Investment securities         102,585      6,107      5.95       82,076       4,945     6.02        63,743       3,866     6.07
 Mortgage-backed
     securities                207,544     13,173      6.35      173,177      11,301     6.53       153,347      10,088     6.58
 Mortgage loans                902,964     71,600      7.93      791,491      66,329     8.38       718,319      60,000     8.35
 Other loans                   114,359     10,507      9.19      105,287       9,902     9.40        94,634       8,847     9.35
                               -------     ------      ----      -------       -----     ----        ------       -----     ----
 Total interest-earning
     assets                  1,378,468    103,884      7.54    1,200,521      95,158     7.93     1,067,121      84,814     7.95
                                          -------      ----                   ------     ----                    ------     ----
 Total noninterest
     -earning assets            45,038                            38,155                             29,575
                                ------                            ------                             ------
 Total assets                1,423,506                         1,238,676                          1,096,696
                             =========                         =========                          =========

Liabilities and
 Stockholders' Equity:
Interest-bearing liabilities
 Deposits:
     Transaction accounts    $ 180,662     $1,781      0.99%   $ 158,723      $1,894     1.19%    $ 138,721     $ 1,896     1.37%
     Passbook savings          103,272      1,993      1.93       87,760       1,674     1.91        77,707       1,356     1.75
     Official checks             8,693        ---       .00        8,004         ---      .00         5,612         ---      .00
     Certificate savings       660,584     33,945      5.14      670,628      36,651     5.47       663,143      35,892     5.41
                               -------     ------      ----      -------      ------     ----       -------      ------     ----
     Total deposits            953,211     37,719      3.96      925,115      40,219     4.35       885,183      39,144     4.42
 FHLB advances                 197,767     11,117      5.62      104,877       6,419     6.12        99,342       5,962     6.00
 Other borrowings                  ---          4       .00          167          20    11.98           561          53     9.45
                             ---------   --------       ---    ---------       -----    -----       -------      ------     ----
 Total interest-bearing
     liabilities             1,150,978     48,840      4.24    1,030,159      46,658     4.53       985,086      45,159     4.58
                             ---------     ------    ------    ---------      ------     ----       -------      ------     ----
 Noninterest-bearing
     liabilities                24,058                            22,648                             21,045
                             ---------                         ---------                          ---------
 Total liabilities           1,175,036                         1,052,807                          1,006,131
 Stockholders' equity          248,470                           185,869                             90,565
                             ---------                         ---------                             ------
 Total liabilities and
     stockholders' equity    1,423,506                         1,238,676                          1,096,696
                             =========                         =========                          =========
Net interest income/
 interest rate spread (2)                $ 55,044      3.30%                $ 48,500     3.40%                 $ 39,655     3.36%
                                         ========     -----                 ========     -----                 ========     ----
Net interest-earning assets/
 net  interest margin (3)    $ 227,490                 3.99%  $ 170,362                  4.04%     $ 82,035                 3.72%
                             =========                -----   =========                  -----     ========                 ----
Interest-earning assets to
 interest-bearing
 liabilities                                         119.76%                           116.54%                            108.33%
                                                    -------                            ------                             ------
</TABLE>
---------------
(1) Average balances and rates include nonaccruing loans.
(2) Interest rate spread  represents the  difference  between  weighted  average
    interest rates earned on  interest-earning  assets and the weighted  average
    interest rates paid on interest-bearing liabilities.
(3) Net  interest  margin  represents  net interest  income as a  percentage  of
    average interest-earning assets. Net interest margin increase in 1998 is due
    primarily to interest  earned on cash proceeds from the conversion of Harbor
    Financial, M.H.C. and concurrent stock offering.


                                       8
<PAGE>

Rate/Volume Analysis

The relationship between the volume and rates of the Company's  interest-earning
assets and  interest-bearing  liabilities  influences the Company's net interest
income.  The following table reflects the sensitivity of the Company's  interest
income and  interest  expense to  changes in volume and in  prevailing  interest
rates.  For  each  category  of  interest-earning  assets  and  interest-bearing
liabilities,  information is provided on effects attributable to: (1) changes in
volume (changes in volume  multiplied by old rate); (2) changes in rate (changes
in rate multiplied by old volume);  and (3) net change.  Changes attributable to
the combined impact of volume and rates have been allocated  proportionately  to
changes due to volume and changes due to rate.
<TABLE>
<CAPTION>
                                                              Years Ended September 30,
                                                                  Increase (Decrease)
                                          1999 vs. 1998              1998 vs. 1997                1997 vs. 1996
                                          -------------              -------------                -------------
                                  Volume     Rate       Net    Volume      Rate      Net     Volume     Rate      Net
                                  ------     ----       ---    ------      ----      ---     ------     ----      ---
                                                                 (Dollars in thousands)
Interest income:
<S>                               <C>      <C>        <C>      <C>         <C>      <C>       <C>       <C>      <C>
    Interest-bearing deposits      $ 118    $ (302)    $(184)   $ 638       $30      $668      $ 21      $ 3      $ 24
    Investment securities          1,163        (1)    1,162    1,086        (7)    1,079     1,424      (20)    1,404
    Mortgage-backed securities     2,181      (309)    1,872    1,294       (81)    1,213        29      (96)      (67)
    Mortgage loans                 8,954    (3,683)    5,271    6,207       122     6,329     8,259     (496)    7,763
    Nonmortgage loans:
        Commercial loans             520       (74)      446      417       (22)      395        85      (72)       13
        Consumer loans               320      (161)      159      601        59       660     1,289       31     1,320
                                   -----     -------   -----   ------       ---    ------    ------    -----      ----
    Total interest income         13,256    (4,530)    8,726   10,243       101    10,344    11,107     (650)   10,457
                                  ------    -------    -----   ------       ---    ------    ------     -----   ------

Interest expense:
    Deposits:
        Transaction accounts       $ 213     $(326)   $ (113)   $ 224    $ (226)     $ (2)    $ 278    $(106)    $ 172
        Passbook savings             299        20       319      192       126       318       (33)    (117)     (150)
        Certificate savings         (516)   (2,190)   (2,706)     409       350       759     5,013     (331)    4,682
                                    -----   -------   -------     ---       ---       ---     -----     -----    -----
    Total deposits                    (4)   (2,496)   (2,500)     825       250     1,075     5,258     (554)    4,704
    FHLB advances                  4,736       (38)    4,698      331       126       457     1,455      (86)    1,369
    Other borrowings                 (16)      ---       (16)    (36)         3       (33)      (26)      (2)      (28)
                                    ----    ------       ----    ----     -----      ----      ----     ----      ----
    Total interest expense         4,716    (2,534)    2,182    1,120       379     1,499     6,687     (642)    6,045
                                   -----   -------     -----    -----      ----     -----     -----      ---     -----

Net interest income               $8,540  $ (1,996)  $ 6,544   $9,123   $ (278)   $ 8,845   $ 4,420     $ (8)  $ 4,412
                                  ======  =========  =======   ======   =======   =======   =======     =====  =======
</TABLE>

Results of Operations

Year Ended September 30, 1999 Compared to Year Ended September 30, 1998

General

Diluted  earnings per share for the year ended  September  30,  1999,  increased
43.4% to 76 cents per share on net income of $21.2 million, compared to 53 cents
per  share  on net  income  of  $16.0  million  for the same  period  last  year
(excluding  the impact in 1998 of $1,345,000  after tax of  nonrecurring  income
from the payoff of a problem  commercial  real estate  loan,  sale of the Bank's
ownership  interest  in its  data  processing  servicer  and  sale of  land  and
buildings).   This  increase  was  due  primarily  to  an  increase  in  average
interest-earning  assets  and  a  decrease  in  the  average  number  of  shares
outstanding.  Reported  diluted  earnings per share for the year ended September
30,  1998 was 57 cents per share on net income of $17.4  million.  Net  interest
income  increased  13.5% to $55.0 million for the year ended September 30, 1999,
compared to $48.5 million for the year ended  September 30, 1998.  This increase
was due to an increase in interest  income of $8.7 million offset by an increase
in interest expense of $2.2 million.  Other income increased to $6.0 million for
the year ended September 30, 1999 from $5.8 million for the year ended September
30, 1998. Other expenses increased to $25.8 million for the year ended September
30, 1999 from $24.4 million for the year ended September 30, 1998.



                                       9
<PAGE>

Interest Income

Total interest  income  increased to $103.9 million for the year ended September
30, 1999 from $95.1 million for the year ended September 30, 1998 as a result of
an increase in average  interest-earning  assets that was partially  offset by a
decrease  in  the  average  interest  rate.  Average   interest-earnings  assets
increased to $1.378  billion for the year ended  September  30, 1999 from $1.201
billion  for the year ended  September  30,  1998.  The  average  rate earned on
interest-earning  assets  decreased  to 7.54% for the year ended  September  30,
1999,  from 7.93% for the year ended  September 30, 1998, a decrease of 39 basis
points.  The year ended September 30, 1998 included  $874,000 of interest income
recognized on the payoff of a problem  commercial real estate loan. The increase
in average  interest-earning  assets was due primarily to cash proceeds from the
conversion of Harbor Financial, M.H.C. and concurrent stock offering (the "Stock


Offering"),  new FHLB advances and the increase in deposits.  Interest income on
loans  increased $5.9 million to $82.1 million for the year ended  September 30,
1999 from $76.2 million for the year ended September 30, 1998. This increase was
a result of a $120.2 million  increase in the average  balance to $1.017 billion
in 1999 from $896.8  million in 1998 that was partially  offset by a decrease of
43 basis  points in the average  yield to 8.01% in 1999 from 8.50% in 1998.  The
increase  in the average  balance of total  loans was mainly due to  significant
growth  in  the  residential  and  commercial  loan  portfolios  resulting  from
increased levels of loan originations.  Interest income on investment securities
increased  $1.1  million to $6.1 million for the year ended  September  30, 1999
from $5.0  million for the year ended  September  30,  1998.  This  increase was
primarily  the result of a $20.5  million  increase  in the  average  balance to
$102.5  million in 1999 from $82.0 million in 1998.  The increase in the average
balance of investment  securities  was primarily due to the purchase of FHLB and
FNMA Notes with the proceeds from the Stock  Offering in 1998, new FHLB advances
and the  increase in deposits.  Interest  income on  mortgage-backed  securities
increased  $1.9 million to $13.2  million for the year ended  September 30, 1999
from $11.3  million for the year ended  September  30, 1998.  This  increase was
primarily  the result of a $34.3  million  increase  in the  average  balance to
$207.5  million in 1999 from $173.2 million in 1998. The increase in the average
balance of  mortgage-backed  securities  was  primarily  due to the  purchase of
fifteen-year fixed rate securities with the proceeds from new FHLB advances.

Interest Expense

Total interest  expense  increased to $48.8 million for the year ended September
30, 1999 from $46.6 million for the year ended September 30, 1998. This increase
was due  primarily  to an increase in average  interest-bearing  liabilities  to
$1.151 billion for the year ended September 30, 1999 from $1.030 billion for the
year  ended   September   30,   1998.   The  average   interest   rate  paid  on
interest-bearing  liabilities  was 4.24% for the year ended  September  30, 1999
compared to 4.53% for the year ended  September 30, 1998, a decrease of 29 basis
points. Interest expense on deposits decreased $2.5 million to $37.7 million for
the year  ended  September  30,  1999  from  $40.2  million  for the year  ended
September  30, 1998.  This  decrease was due primarily to a decrease of 43 basis
points in the average interest rate paid on deposits to 3.96% for the year ended
September 30, 1999 from 4.39% for the year ended September 30, 1998. The average
balance of deposits  increased by $28.1  million to $953.2  million for the year
ended  September 30, 1999 from $925.1  million for the year ended  September 30,
1998.  The average  deposit mix changed to 30.7% and 69.3% of core  deposits and
certificates, respectively, for the year ended September 30, 1999 from 27.5% and
72.5% for the same period in 1998.  Interest  expense on FHLB advances and other
borrowings  increased $4.7 million to $11.1 million for the year ended September
30, 1999 from $6.4 million for the year ended  September 30, 1998. This increase
was the result of an increase of $92.9 million in the average  balance to $197.8
million in 1999 from $104.9  million in 1998  primarily due to proceeds from new
long-term   fixed  rate  advances  taken  in  order  to  fund  the  purchase  of
mortgage-backed securities and investment securities.

Provision for Loan Losses

The  provision  for loan losses was  $816,000 for the year ended  September  30,
1999,  compared to $297,000 for the year ended September 30, 1998. The provision
for loan losses for the year ended September 30, 1999 was principally  comprised
of a credit of  approximately  $511,000  related to a  decrease  in the level of
classified  loans,  a charge  of  approximately  $645,000  due to  overall  loan
portfolio growth and a charge of approximately $682,000 for net charge offs. The
provision for loan losses for the year ended  September 30, 1998 was principally
comprised of a credit of  approximately  $909,000  related to an decrease in the
level of classified loans, a charge of approximately $1.1 million due to overall
loan  portfolio  growth and a charge of  approximately  $103,000  for net charge
offs.  The  allowance for loan losses was at $12.0 million and $11.8 million for
September 30, 1999 and 1998, respectively.  The allowance was 1.12% and 1.25% of
total loans at  September  30, 1999 and 1998,  respectively,  and was 230.7% and
211.9% of classified loans at September 30, 1999 and 1998,  respectively.  While
the Company's  management  uses  available  information  to recognize  losses on
loans,  future  additions to the allowance may be necessary  based on changes in
economic conditions.
                                       10
<PAGE>

Other Income

Other income  increased by $144,000 to $6.0 million for the year ended September
30, 1999 from $5.8 million for the year ended  September 30, 1998. This increase
is due  primarily  to an  increase  of $1.3  million in other  fees and  service
charges and an  increase  of  $446,000  in income  from real  estate  operations
partially  offset by the $719,000  gain on the sale of the  Company's  ownership
interest in its data  processing  servicer and the $596,000  gain on the sale of
land and buildings in 1998. Other fees and service charges,  primarily from fees
and service charges on deposit products,  were $5.3 million and $4.0 million for
the years ended  September  30, 1999 and 1998,  respectively.  This increase was
primarily due to the growth in deposits.  Income from real estate operations was
$405,000 for the year ended September 30, 1999 compared to a loss of $41,000 for
the year ended September 30, 1998.

Other Expense

Other  expense  increased  by $1.4  million to $25.8  million for the year ended
September 30, 1999 from $24.4 million for the year ended September 30, 1998. The
increase was due  primarily to an increase of $1.1 million in  compensation  and
benefits  and an  increase  of  $129,000  in other  expenses.  The  increase  in
compensation  and benefits is due  primarily  to  additional  staff  required to
support the growth in loans and  deposits.  The increase in other expense is due
primarily to an increase of $185,000 in deposit account losses.

Income Taxes

Income tax expense  increased  by  $911,000 to $13.2  million for the year ended
September 30, 1999 from $12.2 million for the year ended September 30, 1998, due
primarily to an increase in pretax  accounting  income.  The effective tax rates
were 38% and 41% for the years ended September 30, 1999 and 1998, respectively.


Year Ended September 30, 1998 Compared to Year Ended September 30, 1997

General

Net  income for the year  ended  September  30,  1998  increased  30.3% to $17.4
million or 57 cents per diluted share, compared to $13.3 million or 43 cents per
diluted share for the same period last year. Net interest income increased 22.3%
to $48.5  million  for the year ended  September  30,  1998,  compared  to $39.6
million for the year ended  September  30,  1997.  This  increase  was due to an
increase in interest  income of $10.4 million  offset by an increase in interest
expense of $1.5  million.  Other  income  increased to $5.8 million for the year
ended  September  30, 1998 from $4.2  million for the year ended  September  30,
1997. Other expenses increased to $24.4 million for the year ended September 30,
1998 from $21.1 million for the year ended September 30, 1997.

Interest Income

Total interest  income  increased to $95.1 million for the year ended  September
30, 1998 from $84.8 million for the year ended September 30, 1997. This increase
was due  primarily to an increase in average  interest-earning  assets to $1.201
billion for the year ending  September 30, 1998,  compared to $1.067 billion for
the year ending September 30, 1997 and $874,000 of interest income recognized on
the payoff of a problem  commercial  real estate  loan.  The increase in average
interest-earning  assets was due  primarily to the cash  proceeds from the Stock
Offering.  Additionally,  in the quarter  ending  December 31, 1997, the Company
received  final  payment  on a  commercial  real  estate  loan.  This  loan  was
performing,  but had  been  seriously  delinquent  in the  past  and  had  other
characteristics which caused management to be uncertain about the ability of the
borrower to comply with the loan repayment terms. Additional interest income was
recognized in the amount of $874,000 due to deferred cash interest  payments and
unearned  purchase  discount  remaining at time of payoff of the loan.  Interest
income on loans  increased  $7.4  million  to $76.2  million  for the year ended
September  30, 1998 from $68.8  million for the year ended  September  30, 1997.
This increase was a result of a $83.8 million increase in the average balance to
$896.8  million in 1998 from $812.9 million in 1997 and the $874,000 of interest
income recognized on the payoff of the problem  commercial real estate loan. The
increase  in the average  balance of total  loans was mainly due to  significant
growth in the residential  and commercial  loan  portfolios  resulting from high
levels of loan originations.  Interest income on investment securities increased
$1.1  million to $5.0  million for the year ended  September  30, 1998 from $3.9
million for the year ended  September 30, 1997.  This increase was primarily the
result of a $18.3  million  increase in the average  balance to $82.0 million in
1998 from  $63.7  million  in 1997.  The  increase  in the  average  balance  of
investment  securities  was primarily due to the purchase of FHLB and FNMA Notes
with the proceeds from the Stock Offering.  Interest  income on  mortgage-backed
securities  increased $1.2 million to $11.3 million for the year ended September
30, 1998 from $10.1 million for the year ended September 30, 1997. This increase
was primarily the result of a $19.8 million  increase in the average  balance to
$173.2  million in 1998 from $153.4 million in 1997. The increase in the average
balance of  mortgage-backed  securities  was  primarily  due to the  purchase of
seven-year  balloon  securities and fifteen-year  fixed rate securities with the
proceeds from new FHLB advances.
                                       11
<PAGE>

Interest Expense

Total interest  expense  increased to $46.6 million for the year ended September
30, 1998 from $45.1 million for the year ended September 30, 1997. This increase
was due  primarily  to an increase in average  interest-bearing  liabilities  to
$1.030 billion for the year ended September 30, 1998 from $985.1 million for the
year  ended   September   30,   1997.   The  average   interest   rate  paid  on
interest-bearing  liabilities  was 4.53% for the year ended  September  30, 1998
compared to 4.58% for the year ended  September  30, 1997, a decrease of 5 basis
points. Interest expense on deposits increased $1.1 million to $40.2 million for
the year  ended  September  30,  1998  from  $39.1  million  for the year  ended
September  30, 1997.  This  increase  was due  primarily to an increase of $39.9
million in the average  balance to $925.1 million in 1998 from $885.2 million in
1997. The average interest rate paid on deposits  decreased by 7 basis points to
4.35%  for the year  ended  September  30,  1998 from  4.42% for the year  ended
September 30, 1997. This decrease was primarily due to the change in deposit mix
to lower rate core deposits from higher rate  certificates.  The average deposit
mix changed to 27.5% and 72.5% of core deposits and certificates,  respectively,
for the year ended  September  30, 1998 from 25.1% and 74.9% for the same period
in 1997.  Interest  expense  on FHLB  advances  and other  borrowings  increased
$424,000 to $6.4 million for the year ended September 30, 1998 from $6.0 million
for the year  ended  September  30,  1997.  This  increase  was the result of an
increase of $5.1 million in the average  balance to $105.0  million in 1998 from
$99.9 million in 1997  primarily  due to proceeds from new long-term  fixed rate
advances  taken in order to fund the  purchase  of  mortgage-backed  securities,
partially  offset by maturities in 1998 of short-term  advances taken in 1997 to
fund purchases of FHLB Notes.

Provision for Loan Losses

The  provision  for loan losses was  $297,000 for the year ended  September  30,
1998,compared  to $782,000 for the year ended  September 30, 1997. The provision
for loan losses for the year ended September 30, 1998 was principally  comprised
of a credit of  approximately  $909,000  related to a  decrease  in the level of
classified  loans,  a charge of  approximately  $1.1 million due to overall loan
portfolio growth and a charge of approximately $103,000 for net charge offs. The
provision for loan losses for the year ended  September 30, 1997 was principally
comprised of a charge of  approximately  $600,000  related to an increase in the
level of  classified  commercial  real estate loans,  a charge of  approximately
$100,000  due to an  increase  in  classified  consumer  loans,  and a charge of
approximately  $80,000 for unidentified but probable losses due to growth in the
consumer loan portfolio.  The allowance for loan losses was at $11.8 million and
$11.7 million for September 30, 1998 and 1997,  respectively.  The allowance was
1.25% and 1.40% of total loans at September 30, 1998 and 1997, respectively, and
was  211.9% and  117.5% of  classified  loans at  September  30,  1998 and 1997,
respectively.  The Company had net charge offs of $170,000  and $107,000 for the
years ended September 30, 1998 and 1997, respectively.

Other Income

Other  income  increased  by $1.6  million  to $5.8  million  for the year ended
September 30, 1998 from $4.2 million for the year ended  September 30, 1997, due
primarily to a $719,000 gain on the sale of the Company's  ownership interest in
its data processing  servicer, a $596,000 gain on the sale of land and buildings
and an increase of  $678,000 in other fees and service  charges.  Other fees and
service  charges,  primarily from fees and service charges on deposit  products,
were $4.0  million and $3.3 million for the years ended  September  30, 1998 and
1997, respectively. This increase was primarily due to the growth in deposits.

Other Expense

Other  expense  increased  by $3.3  million to $24.4  million for the year ended
September 30, 1998 from $21.1 million for the year ended September 30, 1997. The
increase was  primarily due to an increase of $2.4 million in  compensation  and
benefits,  an increase of $319,000 in occupancy expense, an increase of $839,000
in other  expense  partially  offset by a decrease of  $213,000 in SAIF  deposit
insurance  premiums.  The increase in compensation and benefits is due primarily
to additional  staff required to support the growth in loans and deposits and an
increase of $910,000 in noncash expense of stock benefit plans.  The increase in
occupancy  expense is due primarily to an increase in data processing  equipment
expense.  The  increase  in other  expense is due  primarily  to an  increase of
$116,000 in Delaware franchise tax, $108,000 in deposit account losses and other
increases resulting from the growth in loans and deposits.  The decrease in SAIF
deposit  insurance  premiums is due to lower assessment rates resulting from The
Deposit Insurance Act of 1996.



                                       12
<PAGE>

Income Taxes

Income tax expense increased by $3.6 million to $12.2 million for the year ended
September 30, 1998 from $8.6 million for the year ended  September 30, 1997, due
primarily to an increase in pretax  accounting  income.  The effective tax rates
were 41% and 39% for the years ended September 30, 1998 and 1997, respectively.

Liquidity and Capital Resources

On March 18, 1998, the Company completed its  reorganization  and stock offering
in connection with the conversion of Harbor  Financial,  M.H.C. The Company sold
16,586,752  shares of common  stock for $10.00 per share in the Stock  Offering.
Cash proceeds  after costs and funding of the Company's  ESOP was  approximately
$150 million. The Company also issued 14,112,400 exchange shares (exchange ratio
of 6.0094 to 1) to existing Harbor Florida  Bancorp,  Inc. public  stockholders.
The net proceeds were used for general corporate purposes,  including investment
in home mortgages and other investments in the ordinary course of business.

The Bank is required to maintain  minimum  levels of liquid assets as defined by
OTS regulations. This requirement,  which varies from time to time, is currently
4% of deposits and  short-term  borrowings.  It is the Bank's policy to maintain
average  monthly levels of liquid assets of at least 50 basis points higher than
the  minimum  requirement,  primarily  as a part  of  its  asset  and  liability
management strategy of increasing its levels of rate-sensitive  interest-earning
assets.  At September 30, 1999, the Bank had cash and investments  that exceeded
the  minimum  regulatory   requirement.   In  addition,  the  Bank  had  certain
investments in mortgage-backed  securities  aggregating $197.0 million that also
qualify as liquid  assets under OTS  regulations.  The Bank intends to hold such
investments  in  mortgage-backed   securities  until  maturity.   However,  such
investments  may be used as collateral  for  borrowing as such need arises.  The
Bank's total  liquidity  position as of September  30, 1999 was $344.1  million,
which was $305.4 million in excess of the minimum requirement of $38.7 million.

The Bank's primary sources of funds are deposits, amortization and prepayment of
loans and mortgage-backed  securities,  maturities of investment  securities and
other short-term  investments,  and earnings and funds provided from operations.
The Bank will consider increasing its borrowings from the Federal Home Loan Bank
of Atlanta from time to time to hedge  against  future  increases in  prevailing
deposit account interest rates. In addition,  the Bank holds unpledged fixed and
adjustable rate mortgage-backed  securities totaling $195.7 million at September
30, 1999 that could be used as collateral  under  repurchase  transactions  with
securities  dealers.  Repurchase  transactions  serve as secured  borrowings and
provide a source of short-term liquidity for the Bank.

Net cash provided by the Company's operating activities was $24.6 million, $20.7
million,  and $15.5  million for the years ended  September  30, 1999,  1998 and
1997, respectively.

Net cash used by the Company's investing  activities was $115.5 million,  $188.2
million,  and $93.8  million for the years ended  September  30, 1999,  1998 and
1997, respectively.  The decrease in 1999 was principally due to a $28.3 million
net decrease in  mortgage-backed  securities and a $61.1 million net decrease in
investment  securities  partially  offset by a net increase of $13.5  million in
loans.  The increase in 1998 was principally due to a $43.6 million net increase
in loans and a $50.9 million increase in the purchase of investment securities.

Net cash  provided by the  Company's  financing  activities  was $90.4  million,
$198.4 million,  and $62.7 million for the years ended September 30, 1999, 1998,
and 1997,  respectively.  The  increase  in 1998 was  principally  due to $150.2
million net proceeds from the Stock Offering.

The Bank's liquid assets  consist  primarily of investment  securities,  federal
funds and cash.  At  September  30, 1999,  the Bank had liquid  assets of $150.2
million,  with loan commitments of $50.2 million  (consisting of unused lines of
credit to homebuilders and residential and commercial loan commitments), letters
of credit of $2.0  million and unfunded  loans in process of $70.7  million (the
latter consisting primarily of residential loans in process).

Harbor Florida  Bancshares,  Inc. (the holding company) has cash requirements to
pay dividends to shareholders and the holding company's  expenses.  During 1999,
the holding  company  expended $8.5 million for  dividends  and expenses.  As of
September  30,  1999,  the  holding  company  had $9.8  million in cash and $6.8
million in available for sale  securities  and is eligible to receive  dividends
from the Bank in order to meet future  cash  requirements.  Management  believes
that sufficient  financial  resources exist at the holding company level to meet
its  obligations  for the next twelve  months.  As of September  30,  1999,  $20
million was  available  for  distribution  from the Bank to the holding  company
without further regulatory approval.

                                       13
<PAGE>

Impact of New Accounting Standards

In June 1998,  the  Financial  Accounting  Standards  Board (the "FASB")  issued
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging  Activities"  ("Statement  133"). The effective date for
Statement  133 was delayed by Statement of Financial  Accounting  Standards  No.
137, "Accounting for Derivative Instruments and Hedging Activities - deferral of
the effective date of FASB No. 133" ("Statement 137"), to fiscal years beginning
after  June  15,  2000.  Statement  133  establishes  accounting  and  reporting
standards for derivative  instruments,  including certain derivative instruments
embedded in other  contracts,  and for hedging  activities.  It requires that an
entity  recognize  all  derivatives  as  either  assets  or  liabilities  in the
statement of financial  position and measure those instruments at fair value. It
is currently anticipated that the Company will adopt Statement 133 on October 1,
2000,  and that the statement  will not have a significant  financial  statement
impact upon adoption.

In October,  1998, the FASB issued Statement of Financial  Accounting  Standards
No.  134,   "Accounting  for  Mortgage-backed   Securities  Retained  after  the
Securitization   of  Mortgage  Loans  Held  for  Sale  by  a  Mortgage   Banking
Enterprise."  ("Statement  134") Statement 134 is effective for the first fiscal
year beginning after December 15, 1998, with earlier  adoption  permitted.  This
statement conforms the subsequent  accounting for securities  retained after the
securitization  of  mortgage  loans by a mortgage  banking  enterprise  with the
subsequent  accounting for securities retained after the securitization of other
types of assets by a nonmortgage  entity.  It is currently  anticipated that the
Company will adopt Statement 134 on October 1, 1999, and that the statement will
not have a significant financial statement impact upon adoption.

Year 2000 Considerations

The Year 2000  problem  represents  one of the  biggest  challenges  to face the
information  technology  age.  The problem  results  from  efforts to store data
efficiently in the early years of computer development, when computer memory was
at a premium.  In those years,  computer  programmers made the decision,  almost
universally followed, to store the year as a two-digit number (e.g., 75) instead
of a four-digit number (e.g., 1975).  Therefore,  when the next century arrives,
the date "00" may be  interpreted  as "1900"  instead of "2000".  This can cause
systems  to lock up,  crash or  provide  erroneous  information.  The Year  2000
problem  affects  computer  systems in all  industries,  both  domestically  and
internationally.  It is a complex and difficult problem because of the number of
systems potentially impacted and the interdependence of systems.

The  Company has been  addressing  Year 2000  issues,  by  developing  plans and
implementing  solutions  utilizing the  guidelines  and five  management  phases
recommended by the Federal Financial  Institutions  Examination Council (FFIEC).
The five  phases  along with a sample of tasks  within  each phase  follows:  1)
Awareness - Define the Year 2000 issues,  gain executive  level support,  commit
resources  to the Year  2000  challenge,  establish  a project  team,  develop a
strategy to address all internal and external  systems,  and contact  vendors to
discuss their Year 2000 plans; 2) Assessment - Identify,  assess, and prioritize
the Company's  date  sensitive  items and processes then detail the magnitude of
effort necessary to address them, evaluate the Company's  commercial  customer's
readiness,  and begin  reviewing and  modifying  existing  contingency  plans as
necessary; 3) Renovation - Convert, replace or eliminate software,  hardware and
other date sensitive items as needed and monitor vendors' Year 2000 progress; 4)
Validation - Test and verify software, systems components, other applicable date
sensitive  items;  and 5)  Implementation - Put tested date sensitive items into
production,  continue to monitor  vendors'  Year 2000  readiness,  and implement
contingency plans as necessary.

The Year 2000  issue is the  Company's  top  technology  priority.  Even so, the
Company  is  treating  this  problem  as a  "business"  issue,  and not one just
affecting  technology.  To  successfully  prepare for the Year 2000,  enterprise
coordination  has been  established and resources have been mobilized across the
Company to support  this  effort.  The  Company  developed a Year 2000 plan (the
"Millennium  Plan") which was first  presented to the Board of Directors  during
June 1997. Management provides regular progress reports to the Company's Systems
Corporate Steering Committee,  which oversees all Systems activities,  including
the Year 2000.  The Board of Directors is also updated  monthly on the Company's
Year 2000 process.



                                       14
<PAGE>

In  addition,  the Company has put  together an  extensive  Year 2000  Awareness
program.  Various activities have been implemented to educate both consumers and
employees on the Year 2000. Such activities include: enclosing various brochures
as statement stuffers for all account holders;  conducting on-going contact with
our  commercial  customers;  establishing  a Year  2000  Hotline;  printing  the
telephone number for this hotline on customer transaction receipts; posting Year
2000  announcements,  including  scam  alerts,  on branches  community  bulletin
boards;  publishing Year 2000  information on the Company's web site;  providing
on-going Year 2000 training to all Company employees;  and providing an internal
monthly Year 2000 newsletter to all Company employees.

The Company  identified  and  assessed  its system  level  operations  including
applications  software;  data  processing  hardware  platforms  such as personal
computers and automated teller  machines;  customer,  service bureau,  and third
party interfaces;  operating systems and networking software;  and environmental
systems such as climate control  systems,  sprinklers,  elevators,  and security
systems.  To assess the date  sensitive  items,  each was  identified as mission
critical,  mission  necessary,  mission  important  and  non-mission  necessary.
Mission  critical  items are the  primary  focus for the  Company.  The  largest
component of mission critical items is the Company's service bureau. The Company
is  actively  monitoring  and  involved  with the service  bureau's  progress to
achieve Year 2000 readiness.  The Company has had a significant  role in testing
the service  bureau's  systems.  The service  bureau's core dollars  system (the
Company's customer,  general ledger,  account,  and database) is considered 100%
complete.

Management  also  continues  to work with other third  party  vendors to monitor
their Year 2000  readiness.  The Company is primarily  reliant on external third
party  vendors  for its  computer  processing  and  output,  as  well  as  other
significant   functions  and  services.   Based  upon  the  current  assessment,
management  believes  that the  Company's  third  party  vendors  are taking the
appropriate steps to ensure critical systems will function properly for the Year
2000.

While the Company has received such assurances  from these vendors,  risk exists
in that the assurances are not guarantees and may not be  enforceable.  Thus, in
the event such vendors'  products  and/or  services are not Year 2000 compliant,
the  Company's  recourse  may be  limited.  If the  required  modifications  and
conversions are not completed on a timely basis,  the Year 2000 issue could have
a  material  impact  on  the  operations  of the  Company.  Other  risk  factors
associated with the Year 2000 event include the risk that the Company's business
could be disrupted due to the service bureau and customer  system  failures,  or
even the possible loss of electrical  power or phone service.  The Company could
also be subjected to litigation due to Year 2000  noncompliance  from customers,
borrowers  and  vendors  as a result of both  internal  and third  party  system
failures.

Because testing helps reduce the risk  associated  with Year 2000 failures,  the
Company began testing during the last quarter of 1997. The Company met its goals
of having all internal mission critical and mission  necessary systems compliant
before  December  31, 1998 and  substantially  all other  mission  critical  and
mission necessary systems tested and implemented by June 30, 1999.

It is the intention of the Company to maintain normal business operations during
the  Year  2000  transition  and  beyond.  The  Company  has  developed  its own
company-wide  Year 2000  Contingency  Plan and  Procedures as an addition to the
Company's Corporate Contingency Plan. Together these documents provide the means
to help  insure the  continuity  of daily  operations  in the event of a loss of
essential resources due to Year 2000 induced failures.  They describe individual
contingency plans and procedures  concerning  distinctive  software and hardware
issues,  operational guidelines for continuing operations, and specific policies
and  procedures  to  follow  on  the  occurrence  of a  power  outage,  computer
interruptions, telecommunication interruptions, hurricanes, etc. These documents
also identify  participants,  processes and equipment  that will be necessary to
permit the  Company to  continue  operations.  Testing  of  contingency  actions
started August 1, 1998 and was completed by September 30, 1999.  Adjustments and
further  testing  of  contingency  plans and  procedures  will be  completed  as
necessary.
                                       15

<PAGE>

Management  has  also  completed  a  review  of risk  related  to the  Company's
customers.  Upon review of customer risk, it was determined that only commercial
loan customers posed any significant potential risk related to the Year 2000. As
of September  30, 1999,  the Company had contacted  all of its  commercial  loan
customers  (672  outstanding  commercial  loans  with a total  dollar  amount of
$161,400,238) regarding the customers' awareness of the Year 2000 problem. While
no  assurance  can be given  that its  customers  will be Year  2000  compliant,
management  believes,  based on representations of such customers and reviews of
their  operations,  that the customers  are either  addressing  the  appropriate
issues to insure  compliance  or that they are not faced with material Year 2000
issues. As of September 30, 1999, such a reserve was not necessary. Furthermore,
in   substantially   all  cases  the  credit   extended  to  such  borrowers  is
collateralized by real estate, which inherently minimizes the Company's exposure
in the event that such borrowers do experience  problems or delays becoming Year
2000  compliant.  Additionally,  management  has  developed a Year 2000 Cash and
Liquidity  Contingency Plan should any unlikely problems occur with Fund Takers,
Funds Providers or Capital Market/Asset Management Counterparties.

A Year 2000 budget has been established.  Although the costs of modifications to
the existing  software is being  primarily  absorbed by the third party vendors,
the Company  recognized  the need to purchase new hardware and  software.  Based
upon current  estimates,  the Company has identified  approximately  $800,000 in
total costs, including hardware,  software, and other issues, for completing the
Year 2000 project.  Of that amount,  approximately  $490,000 was incurred during
the year ended September 30, 1998 and approximately $260,000 was incurred during
the year ending  September 30, 1999. The remaining  $50,000 is budgeted for year
ending September 30, 2000.

Due to the general uncertainty inherent in the Year 2000 issues, there can be no
assurance that  potential  systems  interruptions  or  unanticipated  additional
expense  incurred  to obtain  Year  2000  compliance  would not have a  material
adverse  effect on the  Company's  business,  financial  condition,  results  of
operations and business prospects. Nevertheless, the Company believes that, with
the implementation  and completion of the Year 2000 process,  the possibility of
significant interruptions of normal operations and additional expenses should be
reduced.

The Year 2000 information  provided herein should be read in connection with the
Year 2000  Information and Readiness  Disclosure Act which,  among other things,
mandates  that  certain  Year  2000  readiness  disclosures  may  not be used in
litigation.  Further,  all  disclosure  concerning  Year 2000  issues  should be
considered  "Year  2000  Readiness   Disclosure"   pursuant  to  the  Year  2000
Information and Readiness Disclosure Act.




                                       16
<PAGE>




Independent Auditors' Report















Board of Directors
Harbor Florida Bancshares, Inc.:

We have audited the accompanying  consolidated statements of financial condition
of Harbor Florida Bancshares,  Inc., (formerly Harbor Florida Bancorp, Inc.) and
subsidiaries  as of September  30, 1999 and 1998,  and the related  consolidated
statements of earnings,  stockholders'  equity and comprehensive income and cash
flows for each of the years in the three-year  period ended  September 30, 1999.
These consolidated financial statements are the responsibility of Harbor Florida
Bancshares,  Inc.'s  management.  Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of Harbor  Florida
Bancshares,  Inc.  and  subsidiaries  at  September  30, 1999 and 1998,  and the
results  of their  operations  and their cash flows for each of the years in the
three-year period ended September 30, 1999 in conformity with generally accepted
accounting principles.



                                                       KPMG LLP



West Palm Beach, Florida
October 8, 1999




                                       17
<PAGE>



<TABLE>
<CAPTION>

Consolidated Statements of Financial Condition
 September 30, 1999 and 1998                                               1999                1998
                                                                           ----                ----
                                                                      (Dollars in thousands except share
                                                                                     data)
 Assets:
<S>                                                                    <C>                 <C>
 Cash and amounts due from depository institutions                       $ 30,214            $ 23,861
 Interest-bearing deposits in other banks                                  32,959              19,902
 Federal funds sold                                                           ---              20,000
 Investment securities held to maturity (estimated
    market value of $10,844 in 1999 and
    $30,273 in 1998)                                                       10,910              29,989
 Investment securities available for sale at
    estimated market value                                                 76,166              71,516
 Mortgage-backed securities held to maturity
    (estimated market value of $193,474 in 1999
    and $204,842 in 1998)                                                 196,971             201,049
 Loans held for sale (estimated market value
    of $1,747 in 1999 and $736 in 1998)                                     1,747                 714
 Loans, net                                                             1,070,335             944,700
 Accrued interest receivable                                                7,580               7,872
 Real estate owned                                                            911               2,534
 Premises and equipment, net                                               20,139              16,927
 Federal Home Loan Bank stock                                              11,250               8,212
 Goodwill, net                                                              2,361               2,563
 Other assets                                                               1,007                 744
                                                                       ----------          ----------
               Total assets                                            $1,462,550          $1,350,583
                                                                       ==========          ==========

 Liabilities and Stockholders' Equity:
 Liabilities:
    Deposits                                                            $ 977,595           $ 918,126
    Long-term debt                                                        225,000             145,000
    Advance payments by borrowers for taxes and insurance                  18,951              17,608
    Income taxes payable                                                       22                 761
    Other liabilities                                                       5,060               5,369
                                                                        ---------           ---------
               Total liabilities                                        1,226,628           1,086,864
                                                                        ---------           ---------

 Stockholders' Equity:
    Preferred stock; $.10 par value; authorized 10,000,000
        shares; none issued and
        outstanding                                                           ---                 ---
    Common stock; $.10 par value; authorized 70,000,000
        shares; 31,099,967 shares issued and 28,008,627
        outstanding at September 30, 1999 and 30,909,830 issued and
        outstanding at September 30, 1998                                   3,110               3,091
    Paid-in capital                                                       191,016             189,958
    Retained earnings                                                      96,485              83,355
    Common stock purchased by:
        Employee stock ownership plan (ESOP)                              (12,746)            (13,344)
        Recognition and retention plans (RRP)                              (6,258)                ---
    Accumulated other comprehensive income (loss), net                        (70)                659
    Treasury stock, at cost, 3,091,340 shares at September 30, 1999       (35,615)                ---
                                                                          -------             -------
             Total stockholders' equity                                   235,922             263,719
                                                                       ----------          ----------
             Total liabilities and stockholders' equity                $1,462,550          $1,350,583
                                                                       ==========          ==========
</TABLE>

See accompanying notes to consolidated financial statements.




                                       18
<PAGE>



Consolidated Statements of Earnings

Years ended September 1999, 1998, and 1997
<TABLE>
<CAPTION>
                                                              1999           1998            1997
                                                          (Dollars in thousands except per share data)
 Interest income:
<S>                                                          <C>            <C>            <C>
    Loans                                                    $82,107        $76,231        $68,847
    Investment securities                                      6,107          4,945          3,866
    Mortgage-backed securities                                13,173         11,301         10,088
    Other                                                      2,497          2,681          2,013
                                                             -------         ------         -----
             Total interest income                           103,884         95,158         84,814
                                                             -------         ------         ------
 Interest expense:
    Deposits                                                  37,719         40,219         39,144
    Other                                                     11,121          6,439          6,015
                                                              ------          -----          -----
             Total interest expense                           48,840         46,658         45,159
                                                              ------         ------         ------
             Net interest income                              55,044         48,500         39,655
 Provision for loan losses                                       816            297            782
                                                              ------         ------            ---
             Net interest income after provision for
                loan losses                                   54,228         48,203         38,873
                                                              ------         ------         ------
 Other income:
    Other fees and service charges                             5,319          3,986          3,308
    Income (losses) from real estate operations                  405            (41)           145
    Gain on sale of mortgage loans                                57            142            188
    Other                                                        213          1,763            572
                                                                 ---          -----            ---
             Total other income                                5,994          5,850          4,213
                                                               -----          -----          -----
 Other expenses:
    Compensation and employee benefits                        15,413         14,282         11,931
    Occupancy                                                  3,422          3,365          3,046
    Data processing services                                   1,304          1,244          1,188
    Advertising and promotion                                  1,038          1,010            942
    Other                                                      4,672          4,543          4,041
                                                               -----          -----          -----
             Total other expense                              25,849         24,444         21,148
                                                              ------         ------         ------

             Income before income taxes                       34,373         29,609         21,938
 Income tax expense                                           13,154         12,243          8,611
                                                              ------         ------          -----
             Net income                                     $ 21,219       $ 17,366       $ 13,327
                                                            ========       ========       ========

    Net income per share
                   Basic                                     $ .77           $ .58         $ .44
                                                             =====           =====         =====
                   Diluted                                   $ .76           $ .57         $ .43
                                                             =====           =====         =====
</TABLE>

See accompanying notes to consolidated financial statements.




                                       19
<PAGE>

 Consolidated Statements of Stockholders' Equity and Comprehensive Income
 Years ended September 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
                                                                                       Common
                                                                                        stock                Accum.
                                                                                        purch.               other
                                                                  Common     Common      by                 compre-
                           Compre-                                 Stock     stock    deferred   Treasury   hensive
                           hensive   Common  Paid-in  Retained   Purchased  purchased   comp       stock     income
                           Income    Stock   Capital  earnings    by ESOP    by RRP's   plan      purchased   (loss)   Total
                                                                  (Dollars in thousands)

<S>                      <C>         <C>     <C>       <C>         <C>         <C>     <C>          <C>     <C>       <C>
 Balance at September
   30, 1996                         $3,029  $22,359   $60,893     $(674)      $(53)   $(673)       $ -     $ (49)    $84,832
 Comprehensive income
 Net income               $13,327         -        -    13,327         -          -        -          -         -      13,327
 Other comprehensive
    income, net of
    tax:
  Unrealized gain on
      securities
      available for
      sale                     42         -        -         -         -          -        -          -        42          42
                          -------
 Comprehensive income     $13,369
 Stock options
    exercised                            23      367         -         -          -        -          -         -         390
 Amortization of
    award of ESOP and
    RRP's                                 -      856         -       300         53        -          -         -       1,209
 Dividends paid                           -        -    (3,017)        -          -        -          -         -      (3,017)
 Stock purchased by
    deferred comp.
    Plan                                  -        -         -         -          -     (273)         -         -        (273)
 Tax benefit of stock
    plans                                 -      292         -         -          -        -          -         -         292
                                     ------  -------   -------     ------       ---    ------        --      -----   --------
 Balance at September
    30, 1997                         $3,052  $23,874   $71,203     $(374)       $ -    $(946)        $-      $ (7)   $ 96,802
                                     ------  -------   -------     ------       ---    ------        --      -----   --------
 Comprehensive income
 Net income               $17,366         -        -    17,366         -          -        -          -         -      17,366
 Other comprehensive
    income, net of
    tax:
   Unrealized gain on
      securities
      available for
      sale                    666         -        -         -         -          -        -          -       666         666
                          -------
 Comprehensive income     $18,032         -        -         -         -          -        -          -         -           -
                          =======
 Reorganization of MHC                    -        -       200         -          -        -          -         -         200
 Proceeds of stock
    offering, net                         -  163,493         -         -          -        -          -         -     163,493
 Issuance of ESOP
    shares                                -        -         -    (13,269)         -        -          -         -     (13,269)
 Stock options
    exercised                            39      618         -         -          -        -          -         -         657
 Amortization of
    award of ESOP and
    RRP's                                 -    1,798         -       299          -        -          -         -       2,097
 Dividends paid                           -        - (5,414)           -          -        -          -         -      (5,414)
 Tax benefit of stock
    plans                                 -      175         -         -          -        -          -         -         175
 Stock purchased by
    deferred comp plan                    -        -         -         -          -     (100)         -         -        (100)
 Satisfaction of
    deferred
    compensation
    liability                             -        -         -         -          -    1,046                    -       1,046
                                    -------  -------  --------  ---------       ---    -----         --     -----    --------
 Balance at September
    30, 1998                        $ 3,091 $189,958  $ 83,355  $(13,344)       $ -    $   -         $-     $ 659    $263,719
                                    ------- --------  --------  ---------       ---    -----         --     -----    --------
</TABLE>

                                       20
<PAGE>

<TABLE>
<CAPTION>
                                                                                       Common
                                                                                        stock                Accum.
                                                                                        purch.               other
                                                                  Common     Common      by                 compre-
                           Compre-                                 Stock     stock    deferred   Treasury   hensive
                           hensive   Common  Paid-in  Retained   Purchased  purchased   comp       stock     income
                           Income    Stock   Capital  earnings    by ESOP    by RRP's   plan      purchased   (loss)   Total
                                                                  (Dollars in thousands)


<S>                      <C>         <C>     <C>       <C>         <C>         <C>     <C>          <C>     <C>       <C>
 Balance at September
    30, 1998
    (continued)                     $ 3,091 $189,958  $ 83,355  $(13,344)       $ -     $  -         $-     $ 659    $263,719
 Comprehensive income
 Net income               $21,219         -        -    21,219         -          -        -          -         -      21,219
 Other comprehensive
    income, net of
    tax:
  Unrealized loss on
      securities
      available for
      sale                   (729)        -        -         -         -          -        -          -      (729)       (729)
                          -------
 Comprehensive income     $20,490         -        -         -         -          -        -          -         -           -
                          =======
 Stock options
    exercised                            19      383         -         -          -        -          -         -         402
 Amortization of
    award of ESOP and
    RRP's                                 -      515         -       598        913        -          -         -       2,026
 Dividends paid                           -        -    (8,089)        -          -        -          -         -      (8,089)
 Tax benefit of stock
    plans                                 -      160         -         -          -        -          -         -         160
 Purchase RRP shares                      -        -         -         -     (7,171)       -          -         -      (7,171)
 Purchase treasury
    shares                                -        -         -         -          -        -    (35,615)        -     (35,615)
                                    -------  -------  --------   -------  ---------      ---  ---------     ------   --------
 Balance at September
    30, 1999                        $ 3,110 $191,016  $ 96,485  $(12,746)  $ (6,258)     $ -  $ (35,615)    $ (70)   $235,922
                                    ======= ========  ========  ========  =========      ===  =========     =====    ========
</TABLE>

See accompanying notes to consolidated financial statements.




                                       21
<PAGE>



 Consolidated Statements of Cash Flows
 Years ended September 30, 1999, 1998 and 1997
<TABLE>
<CAPTION>
                                                                          1999             1998            1997
                                                                          ----             ----            ----
                                                                                   (Dollars in thousands)
<S>                                                                    <C>              <C>             <C>
 Cash provided by operating activities:
    Net income                                                          $ 21,219         $ 17,366        $ 13,327
    Adjustments to reconcile net income to net cash
        provided by operating activities:
        Amortization of stock benefit plans                                2,026            2,097           1,209
        Tax benefit of stock plans credited to capital                        160             175             292
        ESOP forfeitures transferred to treasury stock                       (44)             ---             ---
        Originations of loans held for sale                               (9,408)          (9,556)         (5,360)
        Proceeds from sale of loans held for sale                          8,432            9,125           8,583
        Depreciation and amortization                                      1,601            1,282           1,103
        Deferred income tax provision (benefit)                              (66)            (208)          1,781
        Increase in deferred loan fees and costs                           2,156            1,816           1,133
        Amortization of deferred loan fees and costs                      (1,650)          (1,195)           (926)
        Amortization of goodwill                                             202              221             236
        Net amortization (accretion) of other purchase
           accounting adjustments                                             80               80            (12)
        Gain on sale of premises and equipment                                (2)            (594)           (239)
        Gain on sale of real estate owned                                   (207)            (176)           (127)
        Gain on sale of loans held for sale                                  (57)            (142)           (188)
        Accretion of discount on purchased loans                             (13)            (352)            (17)
        (Increase) decrease in accrued interest receivable                   292             (839)           (411)
        Provision for loan losses                                            816              297             782
        Provision for (recovery of) losses on real estate owned             (186)             136            (150)
        (Increase) decrease in other assets                                 (263)             277             157
        Increase (decrease)  in income taxes payable                        (739)             133            (334)
        Increase (decrease) in other liabilities                             216              746          (5,371)
                                                                          ------           ------          ------

        Net cash provided by operating activities                         24,565           20,689          15,468
                                                                          ------           ------          ------

 Cash used by investing activities:
    Net increase in loans                                               (126,827)        (113,365)        (69,732)
    Purchase of mortgage-backed securities                               (70,074)        (100,222)        (61,769)
    Proceeds from principal repayments of mortgage-
        backed securities                                                 73,986           75,827          38,031
    Proceeds from maturities and calls of investment securities
        held to maturity                                                  20,000            5,000          35,000
    Purchase of investment securities held to maturity                      (915)         (29,983)        (20,000)
    Proceeds from maturities and calls of investment securities
        available for sale                                                20,000           47,582          15,533
    Purchase of investment securities available for sale                 (25,805)         (70,427)        (29,500)
    Proceeds from sale of real estate owned                                1,818            2,111           2,202
    Purchase of premises and equipment                                    (4,801)          (5,602)         (4,068)
    Proceeds from sale of premises and equipment                             118            1,460             587
    FHLB stock purchase                                                   (3,038)            (617)           (437)
    Other                                                                    ---              ---             306
                                                                        ---------        ---------        --------     ---

        Net cash used by investing activities                           (115,538)        (188,236)        (93,847)
                                                                        ---------        ---------        --------
</TABLE>

                                       22
<PAGE>

<TABLE>
<CAPTION>
                                                                          1999             1998            1997
                                                                          ----             ----            ----
                                                                                   (Dollars in thousands)
<S>                                                                    <C>              <C>             <C>
 Cash provided by financing activities:
    Net increase in deposits                                              59,469            6,751          59,816
    Net (repayments of) proceeds from short-term borrowings                  ---          (30,400)          5,100
    Repayments of long-term borrowings                                       ---              (75)           (299)
    Net proceeds from long-term borrowings                                80,000           75,000             ---
    Increase in advance payments by borrowers for
        taxes and insurance                                                1,343            1,682             712
    Dividends paid                                                        (8,089)          (5,414)         (3,017)
    Common stock options exercised                                           402              657             390
    Purchase of common stock by recognition and retention plan            (7,171)             ---             ---
    Purchase of  treasury stock                                          (35,571)             ---             ---
    Net proceeds from issuance of common stock                               ---          150,224             ---
                                                                          ------          -------          ------

        Net cash provided by financing activities                         90,383          198,425          62,702
                                                                          ------          -------          ------

        Net increase (decrease) in cash and cash equivalents                (590)          30,878         (15,677)

 Cash and cash equivalents - beginning of period                          63,763           32,885          48,562
                                                                          ------           ------          ------

 Cash and cash equivalents - end of period                              $ 63,173         $ 63,763        $ 32,885
                                                                        ========         ========        ========


 Supplemental disclosures:
    Cash paid for:
        Interest                                                        $ 48,435         $ 46,509        $ 45,159
        Taxes                                                             13,799           12,142           6,918
    Noncash investing and financing activities:
        Additions to real estate acquired in settlement
            of loans through foreclosure                                   1,488            2,815           2,459
        Sale of real estate owned financed by the Company                  1,685              524           1,337
        Change in unrealized gain (loss) on securities
            available for sale                                            (1,187)           1,084              68
        Change in deferred taxes related to securities
            available for sale                                               458             (418)            (26)
        Transfer of loans held for sale to held for maturity                 ---              ---           1,693
        Issue ESOP common stock                                              ---           13,269             ---
        Addition to retained earnings due to merger of Harbor
             Financial, M.H.C.                                               ---              200             ---
        Satisfaction of deferred compensation plan                           ---            1,046             ---
        Transfer to short-term borrowings from long-term debt                ---              300             ---
        Distribution of RRP shares                                           913              ---             ---
</TABLE>

    See accompanying notes to consolidated financial statements.




                                       23
<PAGE>
Notes to Consolidated Financial Statements

September 30, 1999, 1998, and 1997

(1)    Summary of Significant Accounting Policies

(a)    Nature of Business, Reorganization and Offering of Common Stock

Harbor Florida  Bancshares,  Inc. (the "Company" or "Bancshares") is the holding
company for Harbor Federal  Savings Bank (the "Bank").  The Company owns 100% of
the  Bank's  common  stock.  Currently,  it  engages  in  no  other  significant
activities  beyond its ownership of the Bank's common stock.  Consequently,  its
net income is derived from the Bank.  The Bank  provides a wide range of banking
services and is engaged in the business of attracting  deposits  primarily  from
the communities it serves and using these and other funds to originate primarily
one-to-four family first mortgage loans for retention in its portfolio.

Prior to March 18,  1998,  the  Company's  predecessor  entity,  Harbor  Florida
Bancorp,  Inc.  ("Bancorp"),  was owned approximately 53.37% by Harbor Financial
M.H.C.  ("Mutual Holding Company") and 46.63% by public  shareholders.  On March
18,  1998,  pursuant to a plan of  conversion  and  reorganization,  and after a
series of  transactions:  (1) a new  entity,  Bancshares,  became the  surviving
corporate  entity,  (2)  Bancshares  sold  the  ownership  interest  in  Bancorp
previously  held by the Mutual  Holding  Company to the public in a subscription
offering (the "Offering")  (16,586,752  common shares at $10.00 resulting in net
cash proceeds after costs and funding the ESOP (note 17) of  approximately  $150
million), (3) previous public shareholders of Bancorp had their shares exchanged
into 14,112,400 common shares of Bancshares (exchange ratio of 6.0094 to 1) (the
"Exchange"),  and (4) the  Mutual  Holding  Company  ceased to exist.  The total
number of shares of common stock outstanding following the Offering and Exchange
was 30,699,152.  The  reorganization  was accounted for in a manner similar to a
pooling  of  interests  and  did  not  result  in  any  significant   accounting
adjustments.  As a result  of the  reorganization,  the  consolidated  financial
statements  for prior  periods have been  restated to reflect the changes in the
par value of  common  stock  from  $.01 to $.10 per  share and in the  number of
authorized shares of common stock from 13,000,000 to 70,000,000.

(b)    Basis of Presentation

The  accompanying  consolidated  financial  statements  include the  accounts of
Harbor  Florida  Bancshares,   Inc.,  the  Bank  and  the  Bank's  wholly  owned
subsidiaries.  In  consolidation,  all  significant  intercompany  accounts  and
transactions have been eliminated.

The  consolidated  financial  statements  have been prepared in conformity  with
generally accepted  accounting  principles (GAAP). In preparing the consolidated
financial  statements,  management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent  assets and  liabilities as of the date of the statement of financial
condition and revenues and expenses for the period.  Actual results could differ
significantly from those estimates.

Material  estimates that are particularly  susceptible to significant  change in
the near-term  relate to the  determination of the allowance for loan losses and
the valuation of real estate  acquired in  connection  with  foreclosures  or in
satisfaction of loans. In connection  with the  determination  of the allowances
for loan losses and real estate owned, management obtains independent appraisals
for significant properties.

As of  September  30,  1999,  substantially  all  of  the  Company's  loans  and
investment  in real estate  owned are secured by real estate in the  counties in
which the Company has branch  facilities:  St.  Lucie,  Indian  River,  Brevard,
Martin and Volusia Counties, Florida.  Accordingly,  the ultimate collectibility
of a substantial  portion of the Company's  loan portfolio and the recovery of a
substantial  portion of the carrying amount of real estate owned are susceptible
to changes in market conditions in the above counties.  Management believes that
the  allowances  for losses on loans and real estate owned are  adequate.  While
management  uses  available  information  to recognize  losses on loans and real
estate  owned,  future  additions to the  allowances  may be necessary  based on
changes in economic conditions, particularly in the above counties. In addition,
various regulatory  agencies,  as an integral part of their examination process,
periodically review the Company's allowances for losses on loans and real estate
owned.  Such  agencies  may require the Company to  recognize  additions  to the
allowances based on their judgments about  information  available to them at the
time of their examination.

                                       24
<PAGE>

(c)    Loan Origination and Commitment Fees and Related Costs

Loan fees and certain direct loan  origination  costs are deferred,  and the net
fee is recognized in income using the interest method over the contractual  life
of the loans. Commitment fees and costs relating to commitments whose likelihood
of  exercise  is  remote  are  recognized  over  the  commitment   period  on  a
straight-line  basis.  If the commitment is  subsequently  exercised  during the
commitment  period,  the  remaining  unamortized  commitment  fee at the time of
exercise is recognized over the life of the loan as an adjustment of yield.

(d)    Loan Interest Income

The Company reverses accrued interest related to loans which are 90 days or more
delinquent or placed on non-accrual  status. Such interest is recorded as income
when  collected.  Amortization  of net  deferred  loan  fees  and  accretion  of
discounts  are  discontinued  for  loans  that  are 90 days or more  delinquent.
Interest  income on impaired  loans is  recognized  on an accrual  basis  unless
designated nonaccrual as noted above.

(e)    Investment and Mortgage Backed Securities

Bonds,  notes,  and other debt securities for which the Company has the positive
intent and  ability to hold to  maturity  are  reported  at cost,  adjusted  for
premiums and discounts that are recognized in interest income using the interest
method over the period to maturity.

Available-for-sale securities consist of bonds, notes, other debt securities and
certain   equity   securities   not   classified   as  trading   securities   or
held-to-maturity  securities.  Available-for-sale  securities  are  reported  at
estimated  market  value  and  include  securities  that are  being  held for an
unspecified  period of time, such as those the Company would consider selling to
meet  liquidity  needs  or as part of the  Company's  risk  management  program.
Unrealized  holding  gains  and  losses,  net  of  tax,  on   available-for-sale
securities are reported as a net amount in a separate component of stockholders'
equity until realized.

Gains and losses on the sale of  available-for-sale  securities  are  determined
using the specific-identification method.

Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary results in write-downs
of the individual  securities to their fair value.  The related  write-downs are
included in earnings as realized losses.

The Company does not  purchase,  sell or utilize  off-balance  sheet  derivative
financial instruments or derivative commodity instruments.

At  September  30,  1999  and  1998,  the  Company  had no  commitments  to sell
investment or mortgage-backed securities.

(f)     Loans

Loans are  stated at unpaid  principal  balances,  less  loans in  process,  the
allowances for loan losses and net deferred loan origination fees and discounts.

Discounts on mortgage  loans are  amortized to income using the interest  method
over the remaining period to contractual maturity.

The Company  follows a consistent  procedural  discipline  and accounts for loan
loss  contingencies  in  accordance  with  Statement  of  Financial   Accounting
Standards No. 5, "Accounting for Contingencies"  (Statement 5). The following is
a  description  of how  each  portion  of  the  allowance  for  loan  losses  is
determined.

                                       25
<PAGE>

The  Company  segregates  the loan  portfolio  for loan loss  purposes  into the
following  broad  segments:  commercial  real estate;  residential  real estate;
commercial business;  and consumer. The Company provides for a general allowance
for losses inherent in the portfolio by the above categories,  which consists of
two components.  General loss  percentages are calculated  based upon historical
analyses.  A  supplemental  portion of the allowance is calculated  for inherent
losses which probably exist as of the evaluation date even though they might not
have been  identified by the more objective  processes  used. This is due to the
risk of error and/or  inherent  imprecision in the process.  This portion of the
allowance is particularly subjective and requires judgments based on qualitative
factors which do not lend themselves to exact mathematical calculations such as:
trends in  delinquencies  and  nonaccruals;  migration  trends in the portfolio;
trends in volume,  terms,  and portfolio mix; new credit products and/or changes
in the geographic  distribution of those products;  changes in lending  policies
and procedures;  loan review reports on the efficacy of the risk  identification
process;  changes in the  outlook  for local,  regional  and  national  economic
conditions; concentrations of credit; and peer group comparisons.

Specific  allowances  are  provided  in the event that the  specific  collateral
analysis  on  each  classified  loan  indicates  that  the  probable  loss  upon
liquidation  of  collateral  would  be  in  excess  of  the  general  percentage
allocation. The provision for loan loss is debited or credited in order to state
the allowance for loan losses to the required level as determined above.

The Company considers a loan to be impaired when it is probable that the Company
will be  unable to  collect  all  amounts  due,  both  principal  and  interest,
according  to the  contractual  terms  of the  loan  agreement.  When a loan  is
impaired,  the Company may measure  impairment based on (a) the present value of
the expected  future cash flows of the impaired  loan  discounted  at the loan's
original  effective  interest  rate,  (b) the  observable  market  price  of the
impaired   loans,   or   (c)   the   fair   value   of  the   collateral   of  a
collateral-dependent  loan.  The  Company  selects the  measurement  method on a
loan-by-loan basis, except for collateral-dependent  loans for which foreclosure
is probable must be measured at the fair value of the collateral.  In a troubled
debt   restructuring   involving  a  restructured  loan,  the  Company  measures
impairment by  discounting  the total  expected  future cash flows at the loan's
original effective rate of interest.

(g)    Loans Held for Sale

Mortgage  loans  originated  and  intended  for  sale in the  secondary  market,
comprised of 1-4 family  residential  loans, are carried at the lower of cost or
estimated market value, in the aggregate.  Net unrealized  losses are recognized
through a valuation allowance by charges to income.

(h)    Real Estate Owned

Real estate properties  acquired through, or in lieu of, loan foreclosure are to
be sold and are  initially  recorded  at fair  value at the date of  foreclosure
establishing  a new  cost  basis.  After  foreclosure,  management  periodically
performs  valuations  and the real  estate is carried  at the lower of  carrying
amount or fair value less cost to sell. Revenue and expenses from operations and
changes in the  valuation  allowance  are included in income  (losses) from real
estate operations.

(i)     Premises and Equipment

Premises  and  equipment  are  carried  at cost less  accumulated  depreciation.
Depreciation of premises and equipment is provided on the  straight-line  method
over the estimated useful lives of the related assets. Estimated lives are three
to fifty  years  for  buildings  and  improvements  and  three to ten  years for
furniture  and   equipment.   Leasehold   improvements   are  amortized  on  the
straight-line  method  over the  shorter of the  remaining  term of the  related
leases or their estimated useful lives.

Maintenance and repairs are charged to expense as incurred and  improvements are
capitalized.  The cost and  accumulated  depreciation  relating to premises  and
equipment retired or otherwise  disposed of are eliminated from the accounts and
any resulting gains or losses are credited or charged to income.

(j)     Goodwill

Goodwill is being amortized on a straight-line  basis over its estimated  useful
life of 15 years.  Goodwill is evaluated by management for  impairment  whenever
events or changes in circumstances indicate that the carrying amount of goodwill
may not be recoverable based on facts and circumstances  related to the value of
net assets acquired that gave rise to the goodwill.

                                       26

<PAGE>

(k)    Income Taxes

The Company and its  subsidiaries  file  consolidated  income tax  returns.  The
Company uses the asset and liability  method to account for income taxes.  Under
the asset and liability method, deferred income taxes are recognized for the tax
consequences of "temporary  differences" by applying enacted statutory tax rates
applicable  to future  years to  differences  between  the  financial  statement
carrying  amounts  and the tax bases of  existing  assets and  liabilities.  The
effect on deferred taxes of a change in tax rates is recognized in income in the
period that includes the enactment date.

The tax bad debt reserve method previously  available to thrift institutions was
repealed  for the  Bank  effective  for the  year  beginning  October  1,  1996.
Consequently,  the  Bank  changed  from  the  reserve  method  to  the  specific
charge-off  method to compute its bad debt  deduction for the tax year beginning
October 1,1996.

As a result of this change in  accounting  method,  the Bank must  recapture the
portion of its bad debt  reserve  (other  than the  supplemental  reserve)  that
exceeds  its base year  reserve  (i.e.,  its tax  reserve  for the last tax year
beginning  before  1988).  For  financial  statement  purposes,   the  Bank  has
previously  provided  deferred  taxes on the  amount of the bad debt  reserve in
excess of the base year.  At the time the Bank was required to change its method
of accounting,  the total reserve subject to recapture and the base year reserve
was approximately $6.8 million and $14.8 million, respectively.

The recapture  amount  resulting  from the change in the method of accounting is
required to be taken into taxable income ratably (on a straight-line basis) over
a six-year period. If the Bank meets certain residential  lending  requirements,
the  commencement of the recapture period may be delayed until the first taxable
year ending after December 31, 1997. The Bank met such  requirements for the tax
years beginning  October 1, 1996 and 1997 and began the recapture  period in the
tax year beginning October 1, 1998.

The Bank's base year reserve must be recaptured  into taxable income as a result
of  certain  non-dividend  distributions.   A  distribution  is  a  non-dividend
distribution  to the extent that, for federal income tax purposes,  (i) it is in
redemption of shares,  (ii) it is pursuant to a liquidation of the  institution,
or (iii) in the case of a current  distribution it, together with all other such
distributions  during the taxable year, exceeds the Bank's current and post-1951
accumulated earnings and profits. The amount charged against the bank's bad debt
reserves in respect to a distribution, which is includible in gross income, will
equal the amount of such distribution, increased by the amount of federal income
tax resulting from such inclusion.

(l)     Pension Plan

The  Company's  policy is to fund  pension  costs as they accrue based on normal
cost.

(m)     Stock-Based Compensation

In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123,  "Accounting for Stock Based  Compensation"  (Statement 123). This standard
allows the use of either the fair value based method  described in Statement 123
or  the  intrinsic  value  based  method  prescribed  by  APB  Opinion  No.  25,
"Accounting  for Stock Issued to Employees."  ("APB 25") The Company has elected
to continue  accounting for stock based compensation under the APB 25 method and
disclose the pro forma impact of Statement 123.

                                       27

<PAGE>

(n)     Statement of Cash Flows

Cash equivalents  include amounts due from banks,  interest-bearing  deposits in
other banks and  Federal  funds sold.  For  purposes of cash flows,  the Company
considers  all highly liquid debt  instruments  with  original  maturities  when
purchased of three months or less to be cash equivalents.

(o)     Net Income Per Share

In February 1997, the FASB issued  Statement of Financial  Accounting  Standards
No. 128, "Earnings Per Share" ("Statement 128").  Statement 128 is effective for
financial  statements  issued  for  periods  ending  after  December  15,  1997.
Statement 128 replaced primary and fully diluted earnings per share ("EPS") with
basic and  diluted  EPS.  Basic  earnings  per share  excludes  dilution  and is
computed by dividing net income by the weighted  average number of common shares
outstanding  for the period.  Diluted  earnings per share reflects the potential
dilution  that could occur if  options,  convertible  securities  or warrants to
issue common shares were exercised.

(p)    Reclassification

Certain amounts included in the 1998 and 1997 consolidated  financial statements
have been reclassified in order to conform to the 1999 presentation.

(q)    Derivative Instruments

The  Company  does  not  purchase,  sell  or  enter  into  derivative  financial
instruments  or  derivative  commodity  instruments  as defined by  Statement of
Financial Accounting Standards No. 119,  "Disclosures about Derivative Financial
Instruments and Fair Value of Financial Instruments."

(r)    New Accounting Pronouncements

In June 1998, the FASB issued  Statement of Financial  Accounting  Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities"  ("Statement
133").  The  effective  date for  Statement  133 was  delayed  by  Statement  of
Financial Accounting  Standards No. 137, "Accounting for Derivative  Instruments
and  Hedging  Activities  -  deferral  of the  effective  date of FASB No.  133"
("Statement 137"), to fiscal years beginning after June 15, 2000.  Statement 133
establishes  accounting  and  reporting  standards for  derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging  activities.  It requires that an entity  recognize all  derivatives  as
either assets or liabilities in the statement of financial  position and measure
those  instruments at fair value. It is currently  anticipated  that the Company
will adopt  Statement 133 on October 1, 2000,  and that the  statement  will not
have a significant financial statement impact upon adoption.

In October,  1998, the FASB issued Statement of Financial  Accounting  Standards
No.  134,   "Accounting  for  Mortgage-backed   Securities  Retained  after  the
Securitization   of  Mortgage  Loans  Held  for  Sale  by  a  Mortgage   Banking
Enterprise."  ("Statement  134") Statement 134 is effective for the first fiscal
year beginning after December 15, 1998, with earlier  adoption  permitted.  This
statement conforms the subsequent  accounting for securities  retained after the
securitization  of  mortgage  loans by a mortgage  banking  enterprise  with the
subsequent  accounting for securities retained after the securitization of other
types of assets by a nonmortgage  entity.  It is currently  anticipated that the
Company will adopt Statement 134 on October 1, 1999, and that the statement will
not have a significant financial statement impact upon adoption.



                                       28
<PAGE>

(2)    Investment and Mortgage-backed Securities

The amortized cost and estimated market value of investment and  mortgage-backed
securities at September 30, 1999 are as follows:
<TABLE>
<CAPTION>
                                                          Gross        Gross       Estimated
                                        Amortized      unrealized    unrealized     market
                                           cost           gains        losses        value
                                                        (Dollars in thousands)
Available for sale:
<S>                                       <C>             <C>           <C>       <C>
   FHLB notes                             $ 50,000        $ ---         $498      $ 49,502
   FNMA notes                               19,961          ---           86        19,875
   Equity securities                         6,320          577          108         6,789
                                             -----          ---          ---         -----
                                            76,281          577          692        76,166
                                            ------          ---          ---        ------
Held to maturity:
   FHLB notes                                9,995          ---            3         9,992
   Municipal securities                        915          ---           63           852
                                               ---          ---           --           ---
                                            10,910          ---           66        10,844
                                            ------          ---           --        ------

   FHLMC mortgage-backed securities         88,191          312        2,444        86,059
   FNMA mortgage-backed securities         108,780          314        1,679       107,415
                                           -------          ---        -----       -------
                                           196,971          626        4,123       193,474
                                           -------          ---        -----       -------
                                          $284,162       $1,203       $4,881      $280,484
                                           =======        =====        =====       =======
</TABLE>

The amortized cost and estimated market value of investment and  mortgage-backed
securities at September 30, 1998 are as follows:
<TABLE>
<CAPTION>
                                                          Gross      Gross     Estimated
                                             Amortized  unrealized unrealized   Market
                                                cost      gains      losses     Value
                                                ----      -----      ------     -----
                                                         (Dollars in thousands)
Available for sale:
<S>                                          <C>           <C>        <C>      <C>
   FHLB notes                                $ 50,000      $ 721      $---     $ 50,721
   FNMA notes                                  19,929        414       ---       20,343
   Other securities                               514        ---        62          452
                                                  ---        ---        --          ---
                                               70,443      1,135        62       71,516
                                               ------      -----        --       ------
Held to maturity:
   FHLB notes                                  19,989        279       ---       20,268
   FNMA notes                                  10,000          5       ---       10,005
                                               ------          -       ---       ------
                                               29,989        284       ---       30,273
                                               ------        ---       ---       ------

   FHLMC mortgage-backed securities            65,610      1,338       ---       66,948
   FNMA mortgage-backed securities            135,439      2,455       ---      137,894
                                              -------      -----       ---      -------
                                              201,049      3,793       ---      204,842
                                              -------      -----       ---      -------
                                             $301,481     $5,212      $ 62     $306,631
                                              =======      =====       ===      =======
</TABLE>



                                       29
<PAGE>

The amortized  cost and estimated  market value of debt  securities at September
30,  1999 and  September  30,  1998 by  contractual  maturity  are shown  below.
Expected  maturities will differ from contractual  maturities  because borrowers
may have  the  right  to call or  prepay  obligations  with or  without  call or
prepayment penalties.


<TABLE>
<CAPTION>
                                                 1999                  1998
                                                 ----                  ----
                                                     Estimated              Estimated
                                           Amortized  market    Amortized    market
                                             cost     value       cost       value
                                             ----     -----       ----       -----
                                                     (Dollars in thousands)
Available for sale:
<S>                                          <C>       <C>         <C>        <C>
   Due in one year or less                   $  ---    $  ---      $  ---     $  ---
   Due in one to five years                  69,961    69,377      69,929     71,064
                                             ------    ------      ------     ------
                                             69,961    69,377      69,929     71,064
                                             ------    ------      ------     ------
Held to maturity:
   Due in one year or less                    9,995     9,992         ---        ---
   Due in one to five years                     ---       ---      29,989     30,273
   Due after ten years                          915       852         ---        ---
                                                ---       ---         ---        ---
                                             10,910    10,844      29,989     30,273
                                             ------    ------      ------     ------

   FHLMC mortgage-backed securities          88,191    86,059      65,610     66,948
   FNMA mortgage-backed securities          108,780   107,415     135,439    137,894
                                            -------   -------     -------    -------
                                            196,971   193,474     201,049    204,842
                                            -------   -------     -------    -------
                                           $277,842  $273,695    $300,967   $306,179
                                            =======   =======     =======    =======
</TABLE>

There were no sales of available for sale securities during 1999, 1998, or 1997.
As of September 30, 1999, the Company had pledged securities with a market value
of $919,000 and a carrying value of $972,000 to  collateralize  the public funds
on deposit.  The  Company had also  pledged  mortgage-backed  securities  with a
market value of $1,027,000 and a carrying  value of $1,010,000 to  collateralize
treasury, tax and loan accounts as of September 30, 1999.

                                       30
<PAGE>

(3)         Loans

Loans at September 30, 1999 and 1998 are summarized below:
<TABLE>
<CAPTION>
                                               1999             1998
                                               ----             ----
                                              (Dollars in thousands)
Mortgage loans:
<S>             <C>                          <C>             <C>
   Construction 1-4 family                   $ 91,922        $ 66,671
   Permanent 1-4 family                       788,408         707,078
   Multi-family                                15,141          11,074
   Nonresidential                              99,824          84,254
   Land                                        41,882          27,562
                                               ------          ------
       Total mortgage loans                 1,037,177         896,639
                                            ---------         -------

Other loans:
   Commercial nonmortgage                      21,192          15,074
   Home improvement                            17,205          19,016
   Manufactured housing                        16,190          16,418
   Other consumer                              65,489          59,223
                                               ------          ------
       Total other loans                      120,076         109,731
                                              -------         -------
       Total loans                          1,157,253       1,006,370
                                            ---------       ---------

Less:
   Loans in process                            70,722          46,152
   Net deferred loan fees and discounts         4,244           3,700
   Allowance for loan losses                   11,952          11,818
                                               ------          ------
                                               86,918          61,670
                                               ------          ------
       Total loans, net                    $1,070,335      $  944,700
                                            =========       =========

Weighted average yield                          8.07%           8.50%
</TABLE>

An analysis of the allowance  for loan losses for the years ended  September 30,
1999, 1998 and 1997 follows:

                                       1999        1998      1997
                                       ----        ----      ----
                                         (Dollars in thousands)
Beginning balance                   $ 11,818    $ 11,691   $ 11,016
Provision for loan losses                816         297        782
Charge-offs                             (762)       (574)      (262)
Recoveries                                80         404        155
                                          --         ---        ---
Ending balance                      $ 11,952    $ 11,818   $ 11,691
                                      ======      ======     ======

At  September  30,  1999 and 1998,  loans  with  unpaid  principal  balances  of
approximately  $2,541,000  and  $2,447,000,  respectively,  were 90 days or more
contractually  delinquent or on nonaccrual  status.  Interest income relating to
nonaccrual loans not recognized for the years ended September 30, 1999, 1998 and
1997 totaled approximately $184,000, $135,000 and $131,000, respectively.

As of September  30, 1999 and 1998,  approximately  $2,059,000  and  $1,909,000,
respectively,  of loans  90 days or more  contractually  delinquent  were in the
process of foreclosure.

The investment in impaired  loans  (primarily  consisting of classified  loans),
other than those evaluated  collectively  for impairment,  at September 30, 1999
and 1998 was  $4,511,000  and  $6,109,000,  respectively.  The average  recorded
investment in impaired loans during the years ended  September 30, 1999 and 1998
were approximately $5,118,000 and $7,695,000,  respectively.  The total specific
allowance  for loan  losses  related to these loans was  approximately  $-0- and
$29,000,  respectively,  on  September  30,  1999 and 1998.  Interest  income on
impaired loans of approximately $461,000, $790,000 and $1,147,000 was recognized
in the years ended September 30, 1999, 1998 and 1997, respectively.

                                       31
<PAGE>

As of September 30, 1999 and September 30, 1998,  mortgage  loans which had been
sold on a recourse basis had  outstanding  principal  balances of $1,413,000 and
$2,213,000, respectively.
                                       32
<PAGE>
Accrued interest receivable at September 30, 1999 and 1998 is summarized below:

                                 1999                 1998
                                 ----                 ----
                                   (Dollars in thousands)
Loans                           $5,241               $4,983
Investment securities            1,002                1,460
Mortgage-backed securities       1,143                1,274
FHLB stock dividends               194                  155
                                   ---                  ---
                                $7,580               $7,872
                                ======               ======

The Company is a party to financial instruments in the normal course of business
to meet  the  financing  needs of its  customers.  These  financial  instruments
include  commitments  to extend  credit and  standby  letters  of credit.  These
instruments  involve,  to varying degrees,  elements of credit and interest rate
risk in excess of the amount  recognized in the  statements  of  condition.  The
contract  or  notional  amounts  of these  instruments  reflect  the  extent  of
involvement the Company has in particular classes of financial instruments.  The
Company  uses the same  credit  policies  in making  commitments  as it does for
on-balance  sheet  instruments.  The Company  controls  the credit risk of these
transactions through credit approvals,  limits, and monitoring procedures.  Such
commitments  are  agreements  to lend to a  customer  as  long  as  there  is no
violation of conditions established in the contract.  Commitments generally have
fixed expiration dates or other termination  clauses.  Standby letters of credit
are conditional  commitments  issued by the Company to guarantee the performance
of a customer to a third party.  The credit risk involved in issuing  letters of
credit is essentially  the same as that involved in extending loan facilities to
customers.  The Company holds collateral  supporting those commitments for which
collateral is deemed  necessary.  Since many of the  commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.

Outstanding  mortgage  loan  commitments  (excluding  loans  in  process),  that
generally expire in 60 days, amounted to approximately  $23,547,000  ($5,040,000
fixed rate,  interest  rates from 5.5% to 8.5%) as of  September  30,  1999.  In
addition,  as of September 30, 1999, the Company had determined that $18,550,000
might be lent to certain homebuilders on a variable rate and home-by-home basis,
subject  to  underwriting  and  product  approval  by the  Company.  Outstanding
nonmortgage  loan  commitments  as of  September  30,  1999  were  approximately
$8,114,000



                                       33
<PAGE>

(4)         Loan Servicing

Mortgage loans, including those underlying pass through securities, serviced for
others are not included in the accompanying  consolidated  financial statements.
The unpaid  principal  balances of these loans at September  30, 1999,  1998 and
1997 are summarized as follows:


                        1999         1998          1997
                        ----         ----          ----
                              (Dollars in thousands)

FHLMC                 $ 11,868     $ 16,214      $ 22,888
FNMA                    33,816       34,706        34,217
Other Investors            520          579         2,767
                           ---          ---         -----
                      $ 46,204     $ 51,499      $ 59,872
                      ========     ========      ========

At  September  30, 1999 and 1998,  collection  of  principal  and interest to be
remitted to FHLMC and FNMA and advance payment for taxes and insurance  relating
to FHLMC and FNMA serviced loans are reflected in the consolidated statements of
financial condition as advance deposits by borrowers for taxes and insurance.

 (5)        Real Estate Owned

Real estate owned at September 30, 1999 and 1998 includes the following:
                                                   1999          1998
                                                   ----          ----
                                                   (Dollars in thousands)
Real estate acquired in satisfaction of loans       $ 911      $ 3,168
Allowance for losses                                  ---        (634)
                                                      ---        ----
                                                  $   911      $ 2,534
                                                   ======       ======

Activity in the  allowance  for losses on real estate owned as of September  30,
1999, 1998 and 1997 is as follows:

                                          1999         1998        1997
                                          ----         ----        ----
                                             (Dollars in thousands)
Beginning balance                         $ 634        $ 578     $ 1,712
Provision for (recovery of) losses         (186)         136        (150)
Charge-offs                                (448)         (80)       (984)
                                          -----          ---        ----
Ending balance                         $    ---     $    634    $    578
                                        =======      =======     =======

Provision  for losses on real estate owned is included in income  (losses)  from
real estate operations in the consolidated statements of earnings.

Legal and  consulting  fees relating to real estate  operations  and real estate
owned are included in other expenses in the consolidated statements of earnings.



                                       34
<PAGE>

(6)    Premises and Equipment

Premises and equipment at September 30, 1999 and 1998 are summarized as follows:


                                                          1999        1998
                                                          -----       ----
                                                      (Dollars in thousands)
Land                                                     $ 6,897     $ 5,327
Buildings and leasehold improvements                      12,724      11,639
Furniture, fixtures and equipment                         11,755      10,091
                                                          ------      ------
                                                          31,376      27,057
Less accumulated depreciation and amortization           (11,237)    (10,130)
                                                         -------     -------
                                                        $ 20,139    $ 16,927
                                                         =======     =======

Depreciation  expense  for the years ended  September  30,  1999,  1998 and 1997
totaled $1,473,000, $1,116,000 and $952,000, respectively.

 (7)   Deposits

 Deposits at September 30, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
                                               1999                    1998
                                                ----                    ----
                                                    Period-end              Period-end
                                           Amount   stated rate     Amount  stated rate
                                           ------   -----------     ------  -----------
                                                     (Dollars in thousands)
<S>                                        <C>        <C>          <C>        <C>
Commercial checking                        $40,455                 $28,508
Noninterest-bearing personal
   checking accounts                        35,721                  26,446
NOW                                         66,184     1.09%        60,129     1.13%
Passbook                                   108,508     1.97%        92,698     2.06%
Money market checking                        1,486     1.27%         1,721     1.27%
Money market investment                     41,529     2.54%        39,353     2.59%
Official checks                             12,431                  10,429
                                            ------                  ------
                                           306,314                 259,284
                                           -------                 -------
Certificate accounts:
       2.01 - 3.00%                            129                     328
       3.01 - 4.00%                         11,275                     ---
       4.01 - 5.00%                        335,422                  84,192
       5.01 - 6.00%                        298,719                 540,210
       6.01 - 7.00%                         25,361                  33,673
       7.01 - 8.00%                            375                     434
       8.01 - 9.00%                            ---                       5
                                           -------                 -------
                                           671,281                 658,842
                                           -------                 -------
                                         $ 977,595               $ 918,126
                                         =========               =========

Weighted average interest rate               3.86%                   4.29%
                                             =====                   =====
</TABLE>



                                       35
<PAGE>

Maturities of outstanding certificates of deposit are summarized as follows:

                                1999          1998
                                ----          ----
                                (Dollars in thousands)
Less than one year           $ 450,851     $ 460,798
One to three years             203,099       159,160
Over three years                17,331        38,884
                                ------        ------
                             $ 671,281     $ 658,842
                             =========     =========

The aggregate  amount of  certificates of deposit in amounts of $100,000 or more
was  approximately  $68,922,000  and $62,727,000 at September 30, 1999 and 1998,
respectively.  Balances of individual certificates in excess of $100,000 are not
federally insured.

Interest expense on deposits is summarized as follows:

                                              1999      1998        1997
                                              ----      ----        ----
                                                  (Dollars in thousands)
Passbook accounts                            $ 1,993   $ 1,674   $ 1,356
NOW, money market checking, and money
    market investment accounts                 1,781     1,894     1,896
Certificate accounts                          33,945    36,651    35,892
                                              ------    ------    ------
                                            $ 37,719  $ 40,219  $ 39,144
                                            ========  ========  ========

Early withdrawal penalties for the years ended September 30, 1999, 1998 and 1997
aggregated  $194,563,  $191,391,  and  $205,702,  respectively,  and are  netted
against interest expense on certificate accounts.

Accrued  interest  payable of $137,425 and  $135,942 at  September  30, 1999 and
1998, respectively, is included in other liabilities.

(8)    Short-Term Borrowings

There were no short-term borrowings at September 30, 1999 or 1998.

Information concerning short-term borrowings is summarized as follows:
                                                1999              1998
                                                ----              ----
                                               (Dollars in thousands)

Average balance during the year                $  ---           $ 12,292

Average interest rate during the year             ---              5.83%

Maximum month-end balance during the year       $ ---           $ 40,300

(9)    Long-Term Debt

 Long-term debt of $225 million and $145 million at September 30, 1999 and 1998,
respectively,  consisted of advances from the Federal Home Loan Bank (FHLB). The
debt is due at various dates through  December 2008,  with fixed terms and fixed
interest rates of 4.94% to 6.5%.

Pursuant to a collateral  agreement  with the FHLB,  advances are secured by all
stock in the FHLB and a blanket  floating  lien that  requires  the  Company  to
maintain  qualifying  first  mortgage  loans as pledged  collateral in an amount
equal to, when discounted at 75% of the unpaid principal balances, the advances.



                                       36
<PAGE>

At September  30, 1999 and 1998,  the FHLB  advances  have fiscal year  maturity
dates as follows:

                                     1999                 1998
                                     ----                 ----
                                       Weighted                Weighted
Year ending September 30,      Amount  ave. rate     Amount    ave. rate
                               ------  ----------    ------    ---------
                                       (Dollars in thousands)
               2001           $ 5,000     6.13%      $ 5,000    6.13%
               2002            10,000     6.10%       10,000    6.10%
               2003            22,000     6.20%       22,000    6.20%
          2003 and after      188,000     5.44%      108,000    5.62%
                              -------     -----      -------    -----
                            $ 225,000     5.56%    $ 145,000    5.76%
                            =========     =====    =========    =====


Other interest expense is summarized as follows:


                                  1999          1998         1997
                                  ----          ----         ----
                                      (Dollars in thousands)
Advances from the FHLB          $ 11,117       $ 6,419      $ 5,962
ESOP loan                            ---            15           49
Other                                  4             5            4
                                --------       -------      -------
                                $ 11,121       $ 6,439      $ 6,015
                                ========       =======      =======

(10)   Income Taxes

Income tax expense  (benefit) for the years ended  September 30, 1999,  1998 and
1997 is summarized as follows:


                      1999        1998          1997
                      ----        ----          ----
                           (Dollars in thousands)
Current:
   Federal          $11,430     $10,751      $ 5,868
   State              1,790       1,700          962
                      -----       -----          ---
                     13,220      12,451        6,830
                     ------      ------        -----
Deferred:
   Federal              (57)       (195)       1,527
   State                 (9)        (13)         254
                        ---        ----         ---
                        (66)       (208)       1,781
                       ----       -----       -----
                   $ 13,154    $ 12,243      $ 8,611
                   ========    ========      =======




                                       37
<PAGE>

The tax effects of  temporary  differences  that give rise to the  deferred  tax
assets and  deferred  tax  liabilities  at  September  30,  1999 and 1998 are as
follows:

                                                          1999       1998
                                                          ----       ----
                                                         (Dollars in thousands)
Deferred tax assets:
   Allowance for bad debts                              $ 2,418    $ 1,850
   Valuation of real estate owned                            11        648
   Deferred compensation                                    780        690
                                                            ---        ---
                                                          3,209      3,188
   Less valuation allowance                                 ---       (130)
                                                            ---       ----
       Total deferred tax assets                          3,209      3,058
                                                          -----      -----
Deferred tax liability:
   Net deferred loan fees and costs                       3,424      3,220
   FHLB stock dividend                                      840        840
   Premises and equipment depreciation difference           654        653
   Purchase accounting adjustments                           21         52
   Cash to accrual adjustment                               ---         44
   Installment sales                                         95        140
                                                             ---       ---
       Total deferred tax liabilities                     5,034      4,949
                                                          -----      -----
                                                          1,825      1,891
Unrealized gain (loss) on available for sale securities     (43)       415
                                                            ----       ---
       Net deferred tax liability                         1,782      2,306
                                                          -----      -----

Less liability at beginning of year                      (2,306)    (2,357)
Change in unrealized gain (loss) on available for sale
   securities                                               458       (418)
Other                                                       ---        261
                                                            ---        ---
Provision (benefit) for deferred income taxes              $(66)    $ (208)
                                                           =====   =======


Income tax expense on income from  continuing  operations is different  than the
amount computed by applying the United States Federal income tax rate of 35% for
1999 and  1998 and 34% for 1997 to  income  from  continuing  operations  before
income taxes because of the following:

                                                     1999      1998      1997
                                                     ----      ----      ----
Statutory Federal income tax rate                     35.0%     35.0%     34.0%
State income tax (net of Federal income tax benefit)  3.6       3.6       3.6
Other                                                (0.3)      2.7       1.7
                                                     -----      ---       ---
Effective tax expense rate                            38.3%     41.3%    39.3%
                                                      =====     =====   =====


Deferred  income taxes payable of  approximately  $1,782,000  and  $2,306,000 at
September 30, 1999 and 1998, respectively, are included in other liabilities.

Retained earnings at September 30, 1999 includes approximately  $14,800,000 base
year tax bad debt reserve for which no deferred  income tax  liability  has been
recognized.  This  amount  represents  an  allocation  of  income  to  bad  debt
deductions.  Reduction of amounts so allocated  for purposes  other than tax bad
debt losses or adjustments  arising from carryback of net operating losses would
create income for tax purposes  only,  which income would be subject to the then
current corporate income tax rate. The unrecorded  deferred income tax liability
on the above amounts was approximately $5,606,000 at September 30, 1999.



                                       38
<PAGE>

(11)   Net Income per Share

Net income per share was computed by dividing net income by the weighted average
number of shares of common  stock  outstanding  during the twelve  months  ended
September 30, 1999, 1998 and 1997.  Adjustments  have been made, where material,
to give effect to the shares that would be outstanding, assuming the exercise of
dilutive stock options, all of which are considered common stock equivalents.


<TABLE>
<CAPTION>
                                                         1999            1998          1997
                                                         ----            ----          ----

<S>                                                     <C>            <C>           <C>
Net income                                              $21,218,745    $17,366,095   $13,326,761
                                                         ==========     ==========    ==========

Weighted average common shares outstanding:
    Shares outstanding                                   29,044,075     30,713,432    30,426,407
    Less weighted average uncommitted ESOP shares        (1,316,732)      (857,136)     (322,047)
                                                         -----------      ---------     ---------
       Total                                             27,727,343     29,856,296    30,104,360
                                                         ==========     ==========    ==========

Basic earnings per share                                     $ 0.77         $ 0.58        $ 0.44
                                                              =====          =====         =====


Weighted average common shares outstanding               27,727,343     29,856,296    30,104,360
  Additional dilutive shares related to stock options       268,481        416,444       535,587
                                                            -------        -------       -------
  Total weighted average common shares and
   equivalents outstanding for
   diluted earnings per share computation                27,995,824     30,272,740    30,639,947
                                                         ==========     ==========    ==========

Diluted earnings per share                                   $ 0.76         $ 0.57        $ 0.43
                                                              =====          =====         =====
</TABLE>


Additional  dilutive  shares are  calculated  under the  treasury  stock  method
utilizing the average  market value of the Company's  stock for the period.  For
the years ended  September 30, 1999, 1998 and 1997,  there were 72,500,  15,000,
and -0- shares of common stock options, respectively, that were antidilutive and
not included in the above calculation.

(12)   Regulatory and Capital Matters

The Bank is subject to various regulatory capital  requirements  administered by
the federal banking agencies.  Failure to meet minimum capital  requirements can
initiate certain mandatory,  and possibly additional  discretionary,  actions by
regulators  that,  if  undertaken,  could have a direct  material  effect on the
Company's  financial  statements.  Under  capital  adequacy  guidelines  and the
regulatory  framework for prompt corrective  action, the Bank must meet specific
capital  guidelines  that involve  quantitative  measures of the Bank's  assets,
liabilities,  and certain off-balance-sheet items as calculated under regulatory
accounting  practices.  The Bank's capital amounts and  classification  are also
subject to  qualitative  judgments  by the  regulators  about  components,  risk
weightings, and other factors.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the Bank to maintain  minimum amounts and ratios (set forth in the table
below)  of  total  and  Tier  I  capital  (as  defined  in the  regulations)  to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined).  Management  believes,  as of September 30, 1999,  that the
Bank meets all capital adequacy requirements to which it is subject.

As of September 30, 1999 and 1998, the most recent  notification from the Office
of  Thrift  Supervision  categorized  the  Bank as well  capitalized  under  the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized the Bank must maintain minimum total risk-based,  Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions or
events  since that  notification  that  management  believes  have  changed  the
institution's category.



                                       39
<PAGE>

The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
                                                                                         To be well capitalized
                                                                       For capital       Under prompt corrective
                                                    Actual            adequacy purpose     action provisions
                                                    ------            ----------------     -----------------
                                              Amount      Ratio      Amount      Ratio     Amount      Ratio
                                              ------      -----      ------      -----     ------      -----
                                                                      (Dollars in thousands)
As of September 30, 1999
<S>                                          <C>          <C>        <C>         <C>       <C>         <C>
   Total capital (to risk-weighted assets)   $153,633     19.50%     $63,035     >8.0%     $78,793     >10.0%

   Tier I (core) capital (to risk-weighted
       assets)                                144,448     18.33%      31,517     >4.0%      47,276     > 6.0%

   Tier I (core) capital (to adjusted
       tangible assets)                       144,448      9.93%      58,160     >4.0%      72,701     > 5.0%

   Tangible capital (to adjusted tangible
       assets)                                144,448      9.93%      21,810     >1.5%         n/a        n/a

As of September 30, 1998
   Total capital (to risk-weighted assets)   $193,276     27.76%     $55,700     >8.0%     $69,625     >10.0%

   Tier I (core) capital (to risk-weighted
       assets)                                185,730     26.68%      27,850     >4.0%      41,775     > 6.0%

   Tier I (core) capital (to adjusted
       tangible assets)                       185,730     13.79%      53,883     >4.0%      67,354     > 5.0%

   Tangible capital (to adjusted tangible
       assets)                                185,730     13.79%      20,206     >1.5%         n/a        n/a

</TABLE>

The Certificate of  Incorporation of the Company provides that in no event shall
any record owner of any outstanding  Common Stock which is  beneficially  owned,
directly or indirectly,  by a person who  beneficially  owns in excess of 10% of
the then  outstanding  shares of Common  Stock  (the  "Limit")  be  entitled  or
permitted to any vote in respect of the shares held in excess of the Limit.

The Company has authorized but not issued preferred stock, subject to regulatory
restrictions and determination of rights and preferences to be determined by the
Board of Directors.

The Plan of  Conversion  (Note 1a) provided for the  establishment  of a special
"liquidation   account"  for  the  benefit  of  Eligible   Account  Holders  and
Supplemental  Eligible  Account  Holders in an amount equal to the amount of any
dividends  waived by the Mutual Holding  Company plus the greater of (1) 100% of
the Bank's retained earnings of $34.5 million at September 30, 1992, the date of
the latest balance sheet  contained in the final offering  circular  utilized in
the Bank's initial public offering in the Mutual Holding Company Reorganization,
or (2) 53.41% of the  Bank's  total  stockholders'  equity as  reflected  in its
latest balance sheet contained in the final Prospectus utilized in the Offerings
plus the amounts  distributed to Bancorp by the Bank at the formation of Bancorp
in 1998. Each eligible Account Holder and Supplemental  Eligible Account Holder,
if such person were to continue to maintain such person's deposit account at the
Bank,  would be  entitled,  upon a  complete  liquidation  of the Bank after the
conversion,  to an interest in the  liquidation  account prior to any payment to
the Company as the sole stockholder of the Bank.

For a period of one year after the date of the Conversion,  total dividends paid
to  stockholders  must not  exceed  the net  income of the  Company  during  the
one-year period.

Applicable rules and regulations of the OTS impose limitations on dividends paid
by the Bank.  Within those  limitations,  certain  "safe  harbor"  dividends are
permitted;  subject to providing the OTS at least 30 days' advance  notice.  The
safe harbor  amount is based upon an  institution's  regulatory  capital  level.
Thrift  institutions  which have  capital in excess of all capital  requirements
before  and  after  the  proposed  dividend,   are  permitted  to  make  capital
distributions  during  any  calendar  year up to the  greater of (i) 100% of net
income to date during the calendar year,  plus one-half of the surplus over such
institution's  capital  requirements  at the beginning of the calendar  year, or
(ii) 75% of net income  over the most  recent  four-quarter  period.  Additional
restrictions  would  apply to an  institution  that  does  not meet its  capital
requirement  before or after a proposed  dividend.  As of  September  30,  1999,
$20,041,000 was available for distribution  from the Bank to the holding company
without further regulatory approval.



                                       40
<PAGE>

13)    Commitments and Contingencies

At September 30, 1999, the Company had irrevocable letters of credit aggregating
approximately $1,974,000.

The Company and  subsidiaries  are  defendants in certain other claims and legal
actions  arising  in  the  ordinary  course  of  business.  In  the  opinion  of
management,  after consultation with legal counsel,  the ultimate disposition of
these  matters  is  not  expected  to  have a  material  adverse  effect  on the
consolidated financial statements of the Company and subsidiaries.

(14)   Related Party Transactions

Directors,  executive  officers and  principal  stockholders  of the Company had
certain  transactions  with the Company in the ordinary  course of business,  as
described below.

Loan  transactions were made on substantially the same terms as those prevailing
at the time for  comparable  loans to other  persons,  did not involve more than
normal risk of collectibility, and are performing as agreed.

The summary of changes in the related party loans follows:

                                                1999         1998       1997
                                                ----         ----       ----
                                                    (Dollars in thousands)
Outstanding loans - beginning of year         $ 1,882      $ 2,284    $ 1,786
New loans                                       6,525        4,714      3,015
Repayments                                     (5,749)      (5,116)    (2,517)
                                               -------      -------    -------
Outstanding balance - end of year             $ 2,658      $ 1,882    $ 2,284
                                              =======      =======    =======

Frank H. Fee, III, a director of the Company,  is also President of the law firm
of Fee & Koblegard,  P.A., which does business under the registered name of Fee,
Koblegard & DeRoss, a general practice law firm. The Company paid  approximately
$126,000,  $122,000, and $150,000 of legal fees in the years ended September 30,
1999, 1998 and 1997, respectively, to this law firm.

Richard K. Davis,  a director  of the  Company,  is also  chairman of Richard K.
Davis Construction Corp.  ("Davis  Construction").  In the years ended September
30, 1999 and 1998,  the Company paid Davis  Construction  a total of $43,806 and
$106,668,  respectively,  for a roof on a new branch  facility and re-roofing of
existing branch facilities.  Additionally,  Davis Construction constructed a new
office and drive-in  facility for the  Company.  This  contract for $926,984 was
awarded June 25, 1997.  The  contract  was put out for  competitive  bid and was
awarded  to Davis  Construction  because  it  submitted  the  lowest bid for the
contract.  In the  years  ended  September  30,  1999 and 1998,  total  payments
relating  to this  contract  were $-0- and  $853,990,  respectively.  Additional
payments  made during  1998 for tenant  improvements  in the new office  totaled
$102,938.

Richard B. Hellstrom,  a director of the Company,  is also President of Lindahl,
Browning,  Ferrari & Hellstrom,  (LBF&H),  an engineering  firm. During 1999 and
1998,  payments  to LBH&F for  engineering  services  were  $7,393 and  $24,650,
respectively.

Prior to Richard N. Bird's  nomination and  subsequent  election to the Board of
Directors  of the  Company,  Bird  Realty  Group,  Inc.  entered  into a listing
agreement with the Company on property listed at $3,895,000. Commissions of $-0-
and $30,833 were paid to Bird Realty in the years ended  September  30, 1999 and
1998, respectively, with regard to the sale of the property.



                                       41
<PAGE>

(15)   Other Expense

Other expense for the years ended  September 30, 1999, 1998 and 1997 consists of
the following:

                                          1999       1998     1997
                                          ----       ----     ----
                                            (Dollars in thousands)
SAIF deposit insurance premium          $ 552       $ 572     $ 785
Professional fees                         558         589       599
Office supplies and forms                 394         399       306
Postage                                   409         397       364
Telephone                                 353         360       280
Other                                   2,406       2,226     1,707
                                        -----       -----     -----
                                      $ 4,672     $ 4,543   $ 4,041
                                      =======     =======   =======

(16)   Disclosures about Fair Value of Financial Instruments

The following  methods and  assumptions  were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

Cash and Amounts Due From Depository  Institutions,  Interest-Bearing  Assets in
Other Banks and Federal  Funds Sold - The  carrying  amount of these assets is a
reasonable estimate of their fair value.

Investment  Securities and  Mortgage-Backed  Securities  Held to Maturity - Fair
value equals quoted market price, if available.  If a quoted market price is not
available,  fair value is  estimated  using  quoted  market  prices for  similar
securities.

Investment  Securities  Available for Sale - Fair value equals  carrying  value,
which equals quoted market price, if available.  If a quoted market price is not
available,  fair value is  estimated  using  quoted  market  prices for  similar
securities.

Loans - The fair value of loans is  estimated by  discounting  future cash flows
using the current rate at which  similar  loans would be made to borrowers  with
similar credit ratings for the same remaining maturities.

Deposits  -  The  fair  value  of  demand  deposits,  interest-bearing  checking
accounts,  savings and money market  deposits is the amount payable on demand at
the reporting  date. The fair value of  certificates  of deposit is estimated by
discounting  future cash flows using the rates currently offered for deposits of
similar remaining maturities.

Long Term Advances from the FHLB - Rates currently  available to the Company for
FHLB advances with similar terms and remaining  maturities  are used to estimate
the fair value of FHLB advances.

Commitments  to Extend Credit and Standby  Letters of Credit - The fair value of
commitments is insignificant.



                                       42
<PAGE>

The estimated  fair values of the Company's  financial  instruments at September
30, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                                                              1999                      1998
                                                                              ----                      ----
                                                                     Carrying       Fair        Carrying      Fair
                                                                      amount        value        amount       value
                                                                      ------        -----        ------       -----
 Assets:                                                                        (Dollars in thousands)
<S>                                                                  <C>           <C>          <C>         <C>
   Cash and amounts due from depository institutions                 $ 30,214      $ 30,214     $ 23,861    $ 23,861
   Interest-bearing deposits in other banks                            32,959        32,959       19,902      19,902
   Federal funds sold                                                     ---           ---       20,000      20,000
   Investment securities held to maturity                              10,910        10,844       29,989      30,273
   Investment securities available for sale                            76,166        76,166       71,516      71,516
   Mortgage-backed securities held to maturity                        196,971       193,474      201,049     204,842
   Loans held for sale                                                  1,747         1,747          714         736

   Loans                                                            1,082,287     1,078,685      956,518     989,418
   Less allowance for loan losses                                    (11,952)           ---      (11,818)        ---
                                                                     --------     ---------      -------     -------
       Loans, net                                                   1,070,335     1,078,685      944,700     989,418
                                                                    ---------     ---------      -------     -------
Liabilities:
   Commercial checking, non-interest-bearing personal, NOW,
       passbook, money market accounts and official checks            306,314       306,314      259,284     259,284
   Certificate accounts                                               671,281       670,852      658,842     665,877
   Long term debt                                                     225,000       215,007      145,000     148,046
</TABLE>

Fair  value  estimates  are made at a specific  point in time based on  relevant
market  information  and  information  about  the  financial  instrument.  These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the  Company's  entire  holdings of a particular  financial
instrument.  Because no market exists for a portion of the  Company's  financial
instruments,  fair  value  estimates  are based on  judgments  regarding  future
expected loss experience,  current economic conditions,  risk characteristics of
various financial instruments and other factors.  These estimates are subjective
in nature and involve  uncertainties  and matters of  significant  judgment and,
therefore,  cannot be determined  with precision.  Changes in assumptions  could
significantly affect the estimates.

(17)   Benefit Plans

Employee Stock Ownership Plan

In January,  1994, as part of the reorganization to the stock form of ownership,
the Company's Employee Stock Ownership Plan ("ESOP") purchased 900,208 shares of
the Company's common stock at $1.664 per share, or $1,498,000,  which was funded
by  a  loan  from  an  unaffiliated  lender.  In  March  1998  as  part  of  the
reorganization  and conversion of Harbor Financial,  M.H.C.,  the Company's ESOP
purchased 1,326,940 shares of the Company's common stock at $10 per share, which
was funded by a loan from the Company. The ESOP covers all eligible employees of
the Company age 21 and over.  Dividends  paid on  unallocated  shares reduce the
Company's  cash  contribution  to the ESOP.  GAAP  requires that any third party
borrowing by the ESOP be reflected as a liability on the Company's  statement of
financial  condition.  The ESOP's  borrowing  from the Company is  eliminated in
consolidation.  At September  30, 1999,  there were  877,433  allocated  shares,
52,380 shares committed to be released,  and 1,274,560 suspense (unallocated and
not yet committed to be released) shares held by the ESOP.  Allocated shares and
shares  committed to be released are  included in the  weighted  average  common
shares  outstanding  used to  compute  earnings  per share.  Total  compensation
expense  charged to earnings in the years ended  September  30,  1999,  1998 and
1997, totaled $1,101,982, $2,064,654 and $1,155,066,  respectively. At September
30, 1999, the fair value of the unallocated shares was $16,172,745.



                                       43
<PAGE>

Recognition and Retention Plans and Stock Option Plans

The  Company's  1998 Stock  Incentive  Plan,  adopted  on  September  18,  1998,
authorizes the award of Recognition and Retention Plan Stock (RRP Stock) and the
granting of options to purchase  common  stock.  As of September  30, 1999,  the
Company  has  awarded  642,828  RRP  shares  at $10.74  average  price per share
totaling  $6,900,000.  The total award will be amortized as compensation expense
ratably over the participants' vesting periods of 5 to 10 years. In November and
December,  1998, the Company's Recognition and Retention Plans ("RRP") purchased
663,470  shares  from  market  sources  at an  average  cost of $10.81 per share
totaling  $7,171,000 in order to fund the grants of RRP stock.  In January 1994,
the  Company's  RRP  purchased  385,803  shares  at $1.664  per  share  totaling
$642,000.  The Company contributed the funds used to acquire the RRP shares. The
purchase price of $642,000 was amortized as  compensation  expense  ratably over
the  participants'  vesting period of three years.  Total  compensation  expense
charged to  earnings  in the years  ended  September  30,  1999,  1998 and 1997,
totaled $924,354, $33,013 and $53,511, respectively.

At  September  30,  1999,  the Company had stock option plans for the benefit of
directors, officers, and other key employees of the Company. The Company applies
APB  Opinion  25 and  related  Interpretations  in  accounting  for  its  plans.
Accordingly, no compensation cost has been recognized for its fixed stock option
plans since stock option  exercise  prices are equal to market price at dates of
grant. The number of shares of common stock reserved for issuance under the 1994
stock option plan is equal to 1,286,012  shares,  or 9.6% of the total number of
common  shares  issued  in the  minority  offering  pursuant  to  the  Company's
reorganization  to the stock form of  ownership.  The number of shares of common
stock  reserved for  issuance  under the 1998 Stock  Incentive  Plan is equal to
1,658,675  (1,558,615  shares  granted at  September  30,  1999) or 5.40% of the
outstanding  shares of common stock as of the  effective  date of the plan.  The
stock options vest in equal  installments  over varying periods not to exceed 10
years, depending upon the individual's position in the Company. At September 30,
1999, 174,478 shares were available for future awards.

A summary of the Company's stock option plans is presented below:

<TABLE>
<CAPTION>
                                                              Years Ended September 30,
                                                     1999                    1998                 1997
                                                     ----                    ----                 ----
                                                         Weighted                Weighted               Weighted
                                                         average                 average                average
                                                         exercise                exercise               exercise
                                              Number      price       Number      price     Number       price
                                              ------      -----       ------      -----     ------       -----

<S>                                          <C>         <C>        <C>          <C>      <C>            <C>
Options outstanding beginning of year        1,919,673    $8.90       807,038     $1.94   1,022,234      $ 1.79
Options granted                                 60,000   $11.86     1,513,615    $10.70      27,042      $ 5.57
Options exercised                            (190,137)    $2.12      (387,496)    $1.70    (234,206)     $ 1.66
Options forfeited                             (73,111)   $10.36       (13,484)    $1.66      (8,032)     $ 3.15
                                              --------   ------     --------      -----     -------      ------
Options outstanding end of year              1,716,425    $9.69     1,919,673     $8.90     807,038      $ 1.94
                                             =========    =====     =========     =====     =======      ======
Options exercisable at year-end                305,253                146,733               302,056
                                               =======                =======               =======
Weighted average fair value of options
   granted during the year                      $ 4.35                 $ 3.97               $ 1.23
                                                ======                 ======               ======
</TABLE>



                                       44
<PAGE>

The following table summarizes  information  about stock options  outstanding at
September 30, 1999:
<TABLE>
<CAPTION>
                                      Options outstanding            Options exercisable
                                      -------------------            -------------------
                                          Weighted
                                          average     Weighted                  Weighted
                            Number       remaining    average     Number        average
Range of                 outstanding    contractual   exercise  exercisable     exercise
exercise prices           @ 9/30/99        life        price     @ 9/30/99       price
---------------           ---------        ----        -----     ---------       -----

<S>                         <C>                <C>        <C>       <C>          <C>
     $ 1.664              150,358           4.3       $ 1.66     150,358     $ 1.664
$ 2.746 to 4.493           46,569           5.9       $ 3.76       7,912       2.746
$ 5.638 to 5.658           21,032           7.3       $ 5.66         ---         ---
$ 6.365 to 6.781            3,004           7.7       $ 6.41         ---         ---
$ 10.69 to 12.00        1,495,462          10.8       $10.75     146,983       10.69
</TABLE>

Had  compensation  cost for the Company's  stock-based  compensation  plans been
determined  consistent  with  Statement  123, the  Company's  net income and net
income per share  would have been  reduced  to the pro forma  amounts  indicated
below:

                                                    1999          1998
                                                    ----          ----
Net income                          As reported    $ 21,219     $ 17,366
                                    Pro forma        20,119       17,326
Net income per share - basic        As reported         .77          .58
                                    Pro forma           .73          .58
Net income per share - diluted      As reported         .76          .57
                                    Pro forma           .72          .57

Only options granted after October 1, 1995 are included in pro forma amounts.

The option method used to calculate the  Statement 123  compensation  adjustment
was  the  Binomial  model  with  the  following   grant  date  fair  values  and
assumptions:
<TABLE>
<CAPTION>
                    Number of       Grant date                        Risk free        Expected        Expected         Expected
Date of grant    options granted    fair value    Exercise price    interest rate    life (years)     volatility        dividend
-------------    ---------------    ----------    --------------    -------------    ------------     ----------        --------
  <S>              <C>               <C>              <C>            <C>                   <C>           <C>              <C>
  01/06/96            27,038         $ 1.10           $ 4.49         5.421%                 5            38.71            $ .27
  11/27/96             6,009           1.21             5.64         5.912                  5            29.89              .30
  01/06/97            18,028           1.19             5.66         6.291                  5            28.33              .30
  06/16/97             2,704           1.50             6.37         6.276                  5            30.71              .32
  06/20/97               300           1.67             6.78         6.271                  5            31.11              .32
  07/08/98            15,000           4.68            12.00         5.433                  5            32.66              .38
  09/18/98         1,498,615           3.96            10.69         4.517                  5            35.13              .38
  12/08/98             1,500           4.21            10.94         4.379                  5            36.20              .46
  04/19/99            58,500           4.35            11.88         5.044                  5            32.25              .46
</TABLE>



                                       45
<PAGE>

Other Plans

The Company has a  noncontributory-defined  benefit  pension  plan  covering all
employees  who have  attained  one year of service and 21 years of age.  Pension
expense  was  $11,500,  $8,700,  and $8,500,  respectively,  for the years ended
September 30, 1999, 1998 and 1997. The plan is a multi-employer  plan.  Separate
actuarial  valuations  are not made for each  employer  nor are plan  assets  so
segregated. The assumed average rate of return used in determining the actuarial
present value of  accumulated  plan benefits was 8%. The date of the most recent
actuarial evaluation is July 1, 1998.

The Company's  401(k) Profit  Sharing Plan and Trust (the "401(k)  Plan") covers
all eligible  employees of the Company age 21 and over. An eligible employee may
elect to  contribute  to the 401(k) Plan in the form of  deferrals of between 1%
and 15% of the  total  compensation  that  would  otherwise  be  payable  to the
employee.  Employee  contributions  are fully vested and  nonforfeitable  at all
times.  The 401(k)  Plan  permits  contributions  by the  Company.  The  Company
currently  makes  matching  contributions  of  25%  of  the  first  6%  of  each
participant's  contributions.  For the years ended  September 30, 1999, 1998 and
1997, the Company's matching contribution totaled approximately $96,000, $89,000
and $83,000, respectively.

The Company has a deferred  compensation  plan for  Directors  (the  "Directors'
Deferred  Compensation Plan") who may elect to defer all or part of their annual
director  fees to fund  the  Directors'  Deferred  Compensation  Plan.  The plan
provides  that deferred fees are to earn interest at an annual rate equal to the
30-month  certificate  of deposit rate,  adjusted and compounded  quarterly.  At
September  30,  1999  and  1998,  deferred  directors'  fees  included  in other
liabilities aggregated $235,234 and $216,737, respectively.  Directors may elect
to have their deferred  compensation balance invested in shares of the Company's
common stock. Such purchases were approximately $113,000,  $101,000 and $273,000
in 1999, 1998 and 1997, respectively.  After purchase of shares of the Company's
common stock, the Company's liability has been satisfied except for distribution
of the shares to the director when he ceases to be a director.  At September 30,
1999 and 1998,  the  Directors'  Deferred  Compensation  Plan held  303,386  and
323,799 shares of the Company's common stock, respectively.

The Company also has a retirement plan for  nonemployee  directors (the "Plan").
The annual basic  benefit under the Plan is based on a percentage of the average
three years  director's fees preceding the termination of service  multiplied by
the  number  of  years of  service,  not to  exceed  50% of the  average  annual
director's  fees.  During the years ended September 30, 1999, 1998 and 1997, the
charge to earnings relating to the Plan was insignificant.

(18)   Quarterly Results of Operations (Unaudited)

The quarterly  results of operations for the years ended  September 30, 1999 and
1998 are as follows:

                                       For the three months ended fiscal 1999
                                       --------------------------------------
                                      Sept.30  June 30   March 31  December 31
                                      -------  -------   --------  -----------
                                      (Dollars in thousands except share data)

Interest income                       26,344   $ 26,047   $ 25,847   $ 25,647
Interest expense                      12,239     12,198     12,221     12,182
                                      ------     ------     ------     ------
       Net interest income            14,105     13,849     13,626     13,465
Provision for  loan losses               152        155        354        155
                                         ---        ---        ---        ---
       Net interest income after
         provision for loan losses    13,953     13,694     13,272     13,310
Total other income                     1,519      1,531      1,461      1,482
Total other expenses                   6,707      6,346      6,306      6,490
                                       -----      -----      -----      -----
       Income before income taxes      8,765      8,879      8,427      8,302
Income tax                             3,197      3,405      3,204      3,348
                                       -----      -----      -----      -----
Net income                           $ 5,568    $ 5,474     $5,223    $ 4,954
                                     =======    =======     ======    =======
Net income per share
   Basic                              $ 0.21     $ 0.20     $ 0.19      $0.17
                                      ======     ======     ======      =====
   Diluted                            $ 0.21     $ 0.20     $ 0.18      $0.17
                                      ======     ======     ======      =====


                                       46
<PAGE>


                                        For the three months ended fiscal 1998
                                        --------------------------------------
                                        Sept. 30  June 30  March 31  December 31
                                        --------  -------  --------  -----------
                                        (Dollars in thousands except share data)

Interest income                        $ 25,015  $ 24,315  $ 22,773  $ 23,054
Interest expense                         12,057    11,375    11,459    11,766
                                         ------    ------    ------    ------
       Net interest income               12,958    12,940    11,314    11,288
Provision for (recovery of)
  loan losses                                66     (231)       651     (188)
                                             --     -----       ---     -----
       Net interest income after
           provision for (recovery
           of)loan losses                12,892    13,171    10,663    11,476

Total other income                        1,298     1,887     1,085     1,580
Total other expenses                      6,412     5,987     5,927     6,117
                                          -----     -----     -----     -----
       Income before income taxes         7,778     9,071     5,821     6,939
Income tax                                3,231     3,736     2,432     2,844
                                          -----     -----     -----     -----
Net income                              $ 4,547   $ 5,335    $3,389   $ 4,095
                                        =======   =======    ======   =======
Net income per share
   Basic                                 $ 0.15    $ 0.18    $ 0.11     $0.14
                                         ======    ======    ======     =====
   Diluted                               $ 0.15    $ 0.18    $ 0.11     $0.13
                                         ======    ======    ======     =====





                                       47
<PAGE>

(19)   Parent Company Financial Information

Condensed  Statements of Financial  Condition at September 30, 1999 and 1998 and
Condensed  Statements of Operations and Cash Flows for the years ended September
30, 1999 and 1998 and the period June 25, 1997  through  September  30, 1997 are
shown below (in thousands) for  Bancshares and it's  predecessor,  Bancorp (Note
1a),  which was formed on June 25, 1998 in a  reorganization  accounted for in a
manner similar to a pooling of interests:

Condensed Statements of Financial Condition
<TABLE>
<CAPTION>
                                                                   1999          1998
                                                                   ----          ----
                                                                  (Dollars in thousands
                                                                   except share data)
Assets:
<S>                                                                <C>          <C>
Cash deposited at Harbor Federal                                   $ 9,832      $ 12,215
Investment securities available for sale at market value             6,789           453
Investment in Harbor Federal                                       216,450       249,956
Income tax receivable from Harbor Federal                               11            34
Due from Harbor Federal                                              3,259         1,277
Accrued interest receivable                                             61           ---
Other assets                                                             6           ---
                                                                  --------      --------
        Total assets                                              $236,408      $263,935
                                                                  ========      ========

Liabilities and Stockholders' Equity:
Liabilities:
    Due to Harbor Federal                                           $  273        $  152
    Other liabilities                                                  213            64
                                                                       ---            --
        Total liabilities                                              486           216
                                                                       ---           ---
Stockholders' Equity:
    Preferred stock; $.10 par value; authorized
        10,000,000 shares; none issued and
        outstanding                                                    ---           ---
    Common stock; $.10 par value; authorized
        70,000,000 shares; issued 31,099,967
        shares issued and 28,008,627 outstanding
        at September 30, 1999 and 30,909,830
        issued and outstanding at September 30, 1998                 3,110         3,091
    Paid in capital                                                191,016       189,958
    Retained earnings                                               96,485        83,355
    Common stock purchased by:
        Employee stock ownership plan (ESOP)                       (12,746)      (13,344)
        Recognition and Retention Plan ("RRP)                       (6,258)          ---
    Net unrealized gain on investment securities
        available for sale, net of income
        taxes                                                          (70)          659
    Treasury stock, at cost, 3,091,340 shares                      (35,615)          ---
                                                                  --------           ---
        Total stockholders' equity                                 235,922       263,719
                                                                   -------       -------
        Total liabilities and stockholders' equity               $ 236,408     $ 263,935
                                                                 =========     =========
</TABLE>

                                       48
<PAGE>


Condensed Statements of Operations

<TABLE>
<CAPTION>
                                                                            For the period
                                                  Year ended  Year ended    June 25, 1997
                                                   Sept. 30,   Sept. 30,     through Sept.
                                                     1999        1998         30, 1997
                                                     ----        ----         --------
                                                           (Dollars in thousands)
<S>                                                <C>         <C>        <C>
Interest on investment securities                     238         ---         ---
                                                      ---         ---         ---
     Total interest income                            238         ---         ---
                                                      ---         ---         ---
Other expense
     Management fee to Harbor Federal              $  175      $  161       $  38
     Other expenses                                   423         197          27
                                                      ---         ---          --
    Total other expense                               598         358          65
        Loss before income tax benefit
           and earnings of
           Harbor Federal                            (360)       (358)        (65)
Income tax benefit                                    136          76          10
                                                      ---          --          --
        Loss before earnings of Harbor Federal       (224)       (282)        (55)
Equity in net earnings of Harbor Federal           21,443      17,648       3,565
                                                   ------      ------       -----
        Net income                                $21,219     $17,366      $3,510
                                                  =======     =======      ======
</TABLE>


                                       49
<PAGE>

Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
                                                                                              For the period
                                                                                               June 25, 1997
                                                                    Year ended September 30      through
                                                                    -----------------------   September 30,
                                                                      1999         1998            1997
                                                                      ----         ----            ----
Cash used by operating activities:                                        (Dollars in thousands)
<S>                                                                 <C>          <C>             <C>
    Net income                                                      $ 21,219     $ 17,366        $ 3,510
    Adjustments to net income:
        Equity in earnings of Harbor Federal                         (21,443)     (17,648)        (3,565)
        Increase in accrued interest receivable                          (61)         ---            ---
        (Increase) decrease in income tax receivable                      23          (53)           (10)
        Increase in other assets                                          (6)         ---            ---
        Increase in payable to Harbor Federal                            175          160             37
        Increase (decrease) in other liabilities                         (56)          86             27
                                                                         ----  --      --             --
        Net cash used by operating activities                           (149)         (89)            (1)
                                                                        -----  -      ----           ---

Cash used by investing activities:
    Purchase of investment securities available for sale              (5,805)        (514)           ---
                                                                      -------        -----           ---
        Net cash used by investing activities                         (5,805)        (514)           ---
                                                                      -------        -----           ---

Cash provided by financing activities:
    Net proceeds from issuance of common stock                           ---      150,223            ---
    (Investment in)/amounts received from Harbor Federal              54,000     (143,889)        12,000
    Dividends paid                                                    (8,089)      (5,414)          (790)
    Purchase common stock to fund RRP Plan                            (7,171)         ---            ---
    Purchase Treasury Stock                                          (35,571)         ---            ---
    Common stock options exercised                                       402          657             32
                                                                       -----        -----         ------
        Net cash provided by financing activities                      3,571        1,577         11,242
                                                                       -----        -----         ------

        Net (decrease) increase in cash and
            cash equivalents                                         (2,383)         974         11,241

Cash and cash equivalents - beginning of period                       12,215       11,241           ---
                                                                      ------       ------           ---

Cash and cash equivalents - end of period                            $ 9,832     $ 12,215       $ 11,241
                                                                     =======     ========       ========

Supplemental disclosures:
    Changes in unrealized gain (loss) on securities
        available for
        sale net of tax                                              $  (729)     $  666       $  36
    Amortization of stock benefit plans                                2,026       2,097         369
    Issuance of ESOP common stock                                        ---      13,269         ---
    Satisfaction of  deferred compensation plan                          ---       1,046         ---
    Tax benefit of employee benefit plans                                160         175         ---
    Distribution of RRP shares                                           913         ---         ---
    ESOP forfeitures transferred to treasury stock                        44         ---         ---
</TABLE>

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